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Mystic Beverage Company is considering purchasing a new bottling machine
Mystic Beverage Company is considering purchasing a new bottling machine. The new machine costs $227,828, plus installation fees of $19,342 and will generate earning before interest and taxes of $67,553 per year over its 6-year life. The machine will be depreciated on a straight-line basis over its 6-year life to an estimated salvage value of 0 Mystic's marginal tax rate is 0%. Mystic will require $32,753 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
Annual Cashflow in Year 3 would be equal to annual EBIT i.e. $67,553.
1. This is because their marginal tax rate is 0 and due to that there is no tax involvement.
2. Since machine is purchased in 1st year, it won't be relevant in calculation for Year 3. Even benefit of depriciation in tax savings would be 0 as tax is 0.
3. Working capital would also be relevant for 1st or last year only. So, that is also not relevant.
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