Estimating Incremental Cash flow After- Tax 1. Galaxy Fans is considering a proposal to buy a new fixing machine. The price of the machine is $108,000, and shipping and installation costs would add another $12,500. The machine falls into the MACRS 3-year class, and it would be sold after 4 years for $65,000. The applicable depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%. There would be no effect on revenues, but pretax labor costs would decline by $44,000 per year hence it is net saving by the new machine. The firm falls in 40% tax bracket.Required: Calculate the initial cash out flow at Year 0 What are the project’s annual net incremental cash flows during Years 1, 2, and 3? Find out the terminal cash flow of the new machine at year four.

Estimating Incremental Cash flow After- Tax 1. Galaxy Fans is considering a proposal to buy a new fixing machine. The price of the machine is $108,000, and shipping and installation costs would add...

Estimating Incremental Cash flow After- Tax

1. Galaxy Fans is considering a proposal to buy a new fixing machine. The price of the machine is $108,000, and shipping and installation costs would add another $12,500. The machine falls into the MACRS 3-year class, and it would be sold after 4 years for $65,000. The applicable depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%. There would be no effect on revenues, but pretax labor costs would decline by $44,000 per year hence it is net saving by the new machine. The firm falls in 40% tax bracket.

Required:

What are the project’s annual net incremental cash flows during Years 1, 2, and 3?

Jun 04, 2022