The present value of the free cash flows

Assignment Help Financial Management

Reference no: EM131448418

Daily Enterprises is purchasing a $9.6 million machine. It will cost $49,000 to transport and install the machine. The machine has a depreciable life of five years, is using straight-line depreciation, and will have no salvage value. The machine will generate incremental revenues of $3.6 million per year along with incremental costs of $1.14 million per year. Daily's marginal tax rate is 35%. You are forecasting incremental free cash flows for Daily Enterprises. If Daily Enterprises decides to use MACRS instead of straight-line depreciation, how would the incremental free cash flows associated with the new machine change?

"The incremental cash flows would increase m years 0 and 1. as the accelerated depreciation schedule would give Daily Enterprises a higher tax shield during those two years In years 2 through 5, the incremental free cash flows would be lower, since the depreciation expenses in these years are lower than 20%. Overall, the present value of the free cash flows would increase under a MACRS depreciation schedule."

Is the above statement true or false?

Reference no: EM131448418

Questions Cloud

What is the present value of the bond : Consider a bond issued at the beginning of 2017. It pays a coupon of 10 on October 30, and a coupon of 10 on Dec 31, together with the principal of 100 in December 31, 2017. It is now February 7th, 2017. The annual interest rate is r = 3.6% APR, cont..

Determine the consequences of this transaction : Your company received a $7 million order on the last day of the year. You filled the order with $3 million worth of inventory. The customer picks up the order the same day and pays $2 million up front in cash; you also issue a bill for the customer t..

What are earnings per share : Bogus Goods Corp. has additions to retained earnings for the year just ended of $350,000. The firm paid out $160,000 in cash dividends, and it has ended total equity of $4.1 million. If the company currently has 210,000 shares of common stock outstan..

Credit card company compounds interest at end of each month : Like many college students, Kristlne applied for a... Bookmark Show transcribed image text Like many college students, Kristlne applied for and got a credit card that has an annual percentage rate (APR) of 15%. Assume that the credit card company com..

The present value of the free cash flows : Daily Enterprises is purchasing a $9.6 million machine. It will cost $49,000 to transport and install the machine. The machine has a depreciable life of five years, is using straight-line depreciation, and will have no salvage value. Overall, the pre..

Calculating profits on margined and unmargined investments : Claire Gerber wants to buy 900 shares of Google, which is selling in the market for $542.93 a share. Rather than liquidate all her savings, she decides to borrow through her broker at 5 percent a year. Assume that the margin requirement on common sto..

What is the difference between gambling and the stock market : Is the stock market gambling? What is the difference between gambling and the stock market. Are the two really that much different?

Fraction of your money will be invested in risk-free bonds : You own some shares of Microsoft worth $1,000. Beta of Microsoft is 2. Microsoft currently has no debt. Microsoft decides to issue debt and buy back some of its stock in open market. Effectively, you want to undo the leverage of Microsoft. What fract..

What is value of your shares after the buyback is completed : You own some shares of Microsoft worth $1,000. Beta of Microsoft is 2. Microsoft currently has no debt. Microsoft decides to issue debt and buy back some of its stock in open market. Specifically, Microsoft decides to buy back 20% of its stock using ..

User Account

All Pages