Daily Enterprises is purchasing a $10.54 million machine. It will cost $58,608.00 to transport and install the machine. The machine has a depreciable life of five years using the straight-line depreciation and will have no salvage value. The machine will generate incremental revenues of $4.33 million per year along with incremental costs of $1.19 million per year. Daily’s marginal tax rate is 38.00%.

Question

The cost of capital for the firm is 11.00%.

(answer in dollars..so convert millions to dollars)

What is the year 0 cash flow for the project?

Answer 1

To calculate the Year 0 cash flow for the project, we need to take into account the initial expenditure involved in purchasing and installing the machine.

1. Cost of the Machine:

   • The purchase price of the machine = $10.54 million = $10,540,000.

2. Transportation and Installation Cost:

   • The cost to transport and install the machine = $58,608.00.

3. Initial Cash Flow Calculation (Year 0):

   • Total Initial Cash Outflow = Cost of the Machine + Transportation and Installation Cost
   • Total Initial Cash Outflow = $10,540,000 + $58,608 = $10,598,608.

Since there are no cash inflows in Year 0, the cash flow for Year 0 will be simply the total cash outflow, but presented as a negative number since it's an initial investment.

Year 0 Cash Flow: $$\text{Year 0 Cash Flow}=-10,598,608$$

Thus, the Year 0 cash flow for the project is -$10,598,608.