Question

Carter company’s machine costs $20,000 and is expected to have a 10-year life. It will depreciate straight-line over a 10-year life to a zero salvage value and it is expected to reduce the firm’s cash operating costs by $3,000 per year. If the firm is in the 50 percent marginal tax bracket, what estimated Year 1–n net cash flows will the machine generate?

Answer 1

MACHINE COST	20000
YEAR	10
SALVAGE	0
DEPRECAITION =	MACHINE COST /YEAR
DEPRECAITION =	20000/10
DEPRECAITION =	2000
CASH FLOW GENERATED BY MACHINE YEAR 1-n
PARTICULARS	AMOUNT
COST SAVING	3000
LESS DEPN	-2000
NET INCOME	1000
LESS TAX @ 50%	-500
INCOME AFTER TAX	500
ADD : DEPN	2000
CASH FLOW	2500
Machine wil Generate $ 2500 Cash Flow Per Year
total cash flow in 10 year =	2500*10
total cash flow in 10 year =	25000