Choose question about cashflow?
Baker Company is considering an investment in a new metal lathe. If the new lathe is purchased, revenues will increase by $5,000 per year and cash operating costs will decline by $10,000 per year. The lathe will cost $60,000 and will be depreciated on a straight-line basis over 10 years to a zero estimated salvage value. Baker’s marginal tax rate is 40%. Determine the annual net cash flows generated by the lathe.
1. $600
2. $9,000
3. $11,400
4. $5,400
and how to calculate it?
Im really an Idiot when it comes to finance and accounting. but let me try my hand on this (if anyone sees any mistakes, feel free to correct me).
profit per yr: $5000 (revenue) + $10000 (operating cost decline) = $15000.00
Metal lathe depreciation = $60,000 x 10% (since it takes 10 years to depreciate) = $6000.00
Net Profit before tax= $15000 – $6000 = $9000.00
tax = $9000 x 40% = $3600.00
hence, annual cash flow = $9000 – $3600 = $5400.00
Please re-examine. Im not a Finance major, im a comp. science student.
Metal Gear Solid – FMV 13 ITA – Baker(Parte 1)
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