Problem:
Ann A. Nicole Industries is considering the purchase of a new machine that will cost $152,000, plus an additional $8,000 to ship and install. The new machine will have a 5-year useful life and will be depreciated to its expected salvage value of $20,000 using the straight-line method. The machine is expected to generate new sales of $65,000 per year and is expected to increase labor and electrical expenses by $12,000 annually. Ann's income tax rate is 40%.
Required:
Question: What is the projected cash flow of the machine for year 1?
- $43,000
- $21,000
- $31,800
- $35,400
Note: Be sure to show how you arrived at your answer.