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# Carter company’s machine costs \$20,000 and is expected to have a 10-year life. It will depreciate...

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?

 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

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