Question

# Ella Inc. is considering purchasing a new milling machine. The new machine costs \$127,340, plus installation...

Ella Inc. is considering purchasing a new milling machine. The new machine costs \$127,340, plus installation fees of \$13,554 and will generate revenue of \$2,803,104 per year and cost of good sold of \$1,546,605 over its 7-year life. The machine will be depreciated on a straight-line basis over its 7-year life to an estimated salvage value of 0. Mystic’s marginal tax rate is 0%. Mystic will require \$31,897 in NWC if the machine is purchased. Determine the annual operating cash flow in if the machine is purchased. round your answer to two decimals.

 Annual depreciation = 20127.71429 (127340+13554)/7 Computation of annual operating cash flow i Revenue= 2,803,104.00 ii Cost 1,546,605.00 iii Depreciation 20,127.71 iv Profit before tax 1,236,371.29 v Tax - vi Net income 1,236,371.29 vii=vi+iii Operating cash flow 1,256,499.00 answer = 1,256,499.00

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