Question

Ella Inc. is considering purchasing a new milling machine. The new machine costs $298,586, plus installation fees of $11,693 and will generate revenue of $3,990,261 per year and cost of good sold of $1,001,512 over its 5-year life. The machine will be depreciated on a straight-line basis over its 5-year life to an estimated salvage value of 0. Mystic’s marginal tax rate is 0%. Mystic will require $33,230 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

Answer #1

Here, tax rate is 0%. Hence, we should not subtract and later add depreciation for any tax advantages because the taxes are zero.

Salvage value=0

Cost=machine cost+installation cost+NWC=$298586+$11693+$33230=$343,509

Please find the below table for annual cashflows

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