Question

A company is considering investing in a piece of machinery that will cost $550,000. It will provide an additional $160,000 in sales each year and its annual cash operating expenses are expected to be $52,000. Management plans to depreciate the machine on a straight-line basis over a 10-year life with no estimated salvage value. The company has a 40% tax rate. How much is net annual operating cash flow expected if the machinery is acquired?

Answer 1

Answer- Net annual operating cash flow expected if the machinery is acquired = $86800.

Explanation- Annual cash inflow = Annual net income+ Annual depreciation

= $31800+$55000

= $86800

Where-Straight line Method- Annual Depreciation Expense

= Cost of asset- Salvage value of asset/No. of useful life (years)

=($550000-$0)/10 years

= $55000

Calculation of Net Income
Particulars	Amount
	$
Annual sales	160000
Less- Annual cash operating expenses	52000
Less- Depreciation	55000
Income before income taxes	53000
Less- Income taxes	21200
($53000*40%)
Net Income $	31800