Hardware Industries is purchasing a new chemical vapor depositor to manufacture silicon chips. The total cost for the machine is $4,900,000, with an additional $100,000 required for delivery and installation. This machine is expected to operate for five years and increase gross profits by $4,730,000 annually, starting at the end of the first year. Additional general expenses related to the machine are estimated at $950,000 per year. Depreciation of the machine will occur over a five-year period using the straight-line method. With a marginal tax rate of 40%, it is necessary to calculate the incremental free cash flows associated with the new machine in year 0 of the project. The machine is assumed to be purchased in year 0, with depreciation starting in year 1.

The additional operating cash flow that a company obtains as a result of embarking on a particular…

Hardware Industries is purchasing a new chemical vapor depositor in order to make silicon chips. It will cost $4,900,000 to buy the machine and $100,000 to have it delivered and installed. The machine is expected to work for five years and raise gross profits by $4,730,000 per year, starting at the end of the first year. Other general expenses associated with using the machine are estimated at $950 thousand for each of those years. The machine will be depreciated over five years using the straight-line method. The marginal tax rate is 40%. What are the incremental free cash flows associated with the new machine in year 0 of the project? Assume the machine is purchased in year 0 and starts depreciating in year 1 of the project.

Hardware Industries is purchasing a new chemical vapor depositor in order to make silicon chips. It will cost $4,900,000 to buy the machine and $100,000 to have it delivered and installed. The machine is expected to work for five years and raise gross profits by $4,730,000 per year, starting at the end of the first year. Other general expenses associated with using the machine are estimated at $950 thousand for each of those years. The machine will be depreciated over five years using the straight-line method. The marginal tax rate is 40%. What are the incremental free cash flows associated with the new machine in year 0 of the project? Assume the machine is purchased in year 0 and starts depreciating in year 1 of the project.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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