v.2 Daily Enterprises is purchasing a $10.5 million machine. It will cost $53,000 to transport and install the machine. The machine has a depreciable life of five years using straight-line depreciation and will have no salvage value. The machine will generate incremental revenues of$4.3 million per year along with incremental costs of $1.2 million per year. Daily's marginal tax rate is 21%. You are forecasting incremental free cash flows for Daily Enterprises. What are the incremental free cash flows associated with the new machine?The free cash flow for year 0 will be $. (Round to the nearest dollar.)The free cash flow for years 1-5 will be $(Round to the nearest dollar.)C

Free cash flow is the cash that is received by the company after making payments to the operating…

Answered: Daily Enterprises is purchasing a $10.5…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 5P

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The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has an initial after-tax cost of 170,000. The project will produce 1,000 cases of mineral water per year indefinitely, starting at Year 1. The Year-1 sales price will be 138 per case, and the Year-1 cost per case will be 105. The firm is taxed at a rate of 25%. Both prices and costs are expected to rise after Year 1 at a rate of 6% per year due to inflation. The firm uses only equity, and it has a cost of capital of 15%. Assume that cash flows consist only of after-tax profits because the spring has an indefinite life and will not be depreciated. a. What is the present value of future cash flows? (Hint: The project is a growing perpetuity, so you must use the constant growth formula to find its NPV.) What is the NPV? b. Suppose that the company had forgotten to include future inflation. What would they have incorrectly calculated as the projects NPV?
Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $17 million, and production and sales will require an initial $5 million investment in net operating working capital. The company’s tax rate is 25%. What is the initial investment outlay? The company spent and expensed $150,000 on research related to the new product last year. What is the initial investment outlay? Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for $1.5 million after taxes and real estate commissions. What is the initial investment outlay?
Each of the following scenarios is independent. All cash flows are after-tax cash flows. Required: 1. Patz Corporation is considering the purchase of a computer-aided manufacturing system. The cash benefits will be 800,000 per year. The system costs 4,000,000 and will last eight years. Compute the NPV assuming a discount rate of 10 percent. Should the company buy the new system? 2. Sterling Wetzel has just invested 270,000 in a restaurant specializing in German food. He expects to receive 43,470 per year for the next eight years. His cost of capital is 5.5 percent. Compute the internal rate of return. Did Sterling make a good decision?
Daily Enterprises is purchasing a $10.4 million machine. It will cost $46,000 to transport and install the machine. The machine has a depreciable life of five years using straight-line depreciation and will have no salvage value. The machine will generate incremental revenues of $4.4 million per year along with incremental costs of $1.5 million per year. Daily's marginal tax rate is 21%. You are forecasting incremental free cash flows for Daily Enterprises. What are the incremental free cash flows associated with the new machine? The free cash flow for year 0 will be $ (Round to the nearest dollar.)
Daily Enterprises is purchasing a $10.4 million machine. It will cost $46,000 to transport and install the machine. The machine has a depreciable life of five years using straight-line depreciation and will have no salvage value. The machine will generate incremental revenues of $4.4 million per year along with incremental costs of $1.5 million per year. Daily's marginal tax rate is 21%. You are forecasting incremental free cash flows for Daily Enterprises. What are the incremental free cash flows associated with the new machine? The free cash flow for year 0 will be $10,446,000. (Round to the nearest dollar.) The free cash flow for years 1-5 will be $ (Round to the nearest dollar.)
Planet Enterprises is purchasing a $9.6 million machine. It will cost $48,000 to transport and install the machine. The machine has a depreciable life of five years using straight-line depreciation and will have no salvage value. The machine will generate incremental revenues of $4.1 million per year along with incremental costs of $1.1 million per year. Planet's marginal tax rate is 30% . You are forecasting incremental free cash flows for Daily Enterprises. What are the incremental free cash flows associated? The free cash flow for year 0 will be ? The free cash flow for years 1-5 will be ?
Daily Enterprises is purchasing a $10.3 million machine. It will cost $54,000 to transport and install the machine. The machine has a depreciable life of five years using straight-line depreciation and will have no salvage value. The machine will generate incremental revenues of $4.3 million per year along with incremental costs of $1.3 million per year. Daily's marginal tax rate is 21%. You are forecastin incremental free cash flows for Daily Enterprises. What are the incremental free cash flows associated with the new machine? The free cash flow for year 0 will be $ (Round to the nearest dollar.)
Daily Enterprises is purchasing a $9.8 million machine. It will cost $47,000 to transport and install the machine. The machine has a depreciable life of 5 years, is using straight-line depreciation, and will have no salvage value. The machine will generate incremental revenues of $3.6 million per year along with incremental costs of $1.12 million per year. Daily's marginal tax rate is 21%. You are forecasting incremental free cash flows for Daily Enterprises. a. If Daily Enterprises decides to use MACRS instead of straight-line depreciation, how would the incremental free cash flows associated with the new machine change? b. Under the TCJA of 2017, Daily Enterprises has the option to take 100% "Bonus" depreciation in the year in which the equipment is put into use. This means that in that year, it would take the full depreciation expense equivalent to the cost of buying the equipment. If Daily does so, which cash flows would increase and which would decrease? How does this compare to…
Daily Enterprises is purchasing a $10.0 million machine. It will cost $50,000 to transport and install the machine. The machine has a depreciable life of five years and will have no salvage value. The machine will generate incremental revenues of $4.0 million per year along with incremental costs of $1.2 million per year. If Daily's marginal tax rate is 21%, what are the incremental earnings (net income) associated with the new machine?
Daily Enterprises is purchasing a $10.4 million machine. It will cost $47,000 to transport and install the machine. The machine has a depreciable life of five years and will have no salvage value. The machine will generate incremental revenues of $4.2 million per year along with incremental costs of $1.4 million per year. If Daily's marginal tax rate is 21%, what are the incremental earnings (net income) associated with the new machine? The annual incremental earnings are $ (Round to the nearest dollar.)
Daily Enterprises is purchasing a $9.7 million machine. It will cost $54,000 to transport and install the machine. The machine has a depreciable life of 55 years and will have no salvage value. The machine will generate incremental revenues of $4.2 million per year along with incremental costs of $1.1 million per year. If Daily's marginal tax rate is 20%, what are the incremental earnings (net income) associated with the new machine?

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