Time Remaining: This Question: 1 pt 2 of 8 (1 complete) This Nokela Industries p

Question

Time Remaining: This Question: 1 pt 2 of 8 (1 complete) This Nokela Industries purchases a $40.4 million cyclo-conver a. What impact will the cost of the purchase have on earnings for each of the next four years? b. What impact will the cost of the purchase have on the firm's cash flow for the next four years? ter. The cyclo-converter will be depreciated by $10.1 million per year over four years, starting this year. Suppose Nokela's tax rate is 40% a. What impact will the cost of the purchase have on earnings for each of the next four years? Earmings willby smillion each year for four years. (Select from the drop-down menu and round to one decimal place.) b. What impact will the cost of the purchase have on the firm's cash flow for the next four years? The impact on the firm's cash flow in year 1 is million. (Round to one decimal place.) The impact on the firm's cash flow in years two through four is S million Round to one decimal place Enter your answer in each of the answer boxes.

Explanation / Answer

a)Earnings will decrease by Depreciation(1-tax)

                = 10.1 (1-.40)

               = 10.1 *.60

              = $ 6.1 million

b)

Tax on depreciation = 10.1 *.40 =$ 4.04 million per year . [rounded to 1 decimal :4]

The impact on firm for year1 : 4 million

For year 2-4 : 4.04 per year or 4.04*3 = 12.1 million

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