please show work i need to learn this. Cameron Industries is purchasing a new chemical vapor depositor in order to make silicon chips. It will cost $7,000,000 to buy the machine and $10,000 to have it delivered and installed. Building a clean room in the plant for the machine will cost an additional $3 million. The machine is expected to raise revenues by $3,000,000 per year, starting at the end of the first year, with associated costs (other than depreciation) of $1 million for each of those years. The machine is expected to have a working life of six years and will be depreciated over those six years. The marginal tax rate is 20%. What are the incremental free cash flows associated with the new machine in year 2? O $1,168,333 $831,667 $1,833,667 $1,165,000 O $665,334
Transcribed Image Text:(Chapter 9) Cameron Industries is purchasing a new chemical vapor depositor in order to make
silicon chips. It will cost $7,000,000 to buy the machine and $10,000 to have it delivered and
installed. Building a clean room in the plant for the machine will cost an additional $3 million.
The machine is expected to raise revenues by $3,000,000 per year, starting at the end of the
first year, with associated costs (other than depreciation) of $1 million for each of those years.
The machine is expected to have a working life of six years and will be depreciated over those
six years. The marginal tax rate is 20%. What are the incremental free cash flows associated
with the new machine in year 2?
$1,168,333
$831,667
$1,833,667
$1,165,000
$665,334
Definition Definition Cash that is left over after a company has paid for its operating and capital expenses. Unlike net income or earnings, free cash flow excludes non-cash expenses of the income statement and includes the expenditures on equipment and assets. Free cash flow also helps potential shareholders to evaluate how quickly the company can pay interest and dividends.
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Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
