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Company is considering purchasing a new bottling machine
Company is considering purchasing a new bottling machine. The new machine costs $208,164, plus installation fees of $13,559 and will generate earning before interest and taxes of $57,527 per year over its 7-year life. The machine will be depreciated on a straight-line basis over its 7-year life to an estimated salvage value of 0. Mystic's marginal tax rate is 0%. Mystic will require $39,223 in NWC if the machine is purchased. Determine the annual cash flow in year 3 if the machine is purchased. round your answer to two decimals
Expert Solution
Answer : Calculation of Annual Cash Flow in year 3 :
Annual cash Flow = [(Earning before Interestand Taxes) * (1 - Taxes)] + Depreciation
Depreciation = (208164 + 13559) / 7
= 31674.71
Annual cash Flow in year 3 = [(57527) * (1 - 0)] + 31674.71
= 57527 + 31674.71
= 89201.71
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