Cameron Industries Is Purchasing a New Chemical Vapor Depositor in Order

question 58

Multiple Choice

Cameron Industries is purchasing a new chemical vapor depositor in order to make silicon chips.It will cost $6 million to buy the machine and $10,000 to have it delivered and installed.Building a clean room in the plant for the machine will cost an additional $3 million.The machine is expected to raise gross profits by $4 million per year,starting at the end of the first year,with associated costs of $1 million for each of those years.The machine is expected to have a working life of six years and will be depreciated over those six years.The marginal tax rate is 40%.What are the incremental free cash flows associated with the new machine in year 2?

• A)$1,001,667
• B)$1,298,917
• C)$2,200,667
• D)$3,247,834

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Definitions:

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