Finance Assignment: Depreciation, Tax Expenses, Free Cash Flow, Discount Rates

FINANCE
ASSIGNMENT

1. Estimated annual depreciation and the tax expenses on selling the
equipment
Depreciation:
Value of the equipment = $150 Million
Salvage value = $50 Million
Life of the Machine = 4 Years
Annual Depreciation with straight line method = ($150 M - $50 M)/ 4 Years
= $25 Million per year
Tax expenses
Selling price of the equipment = $50 Million
Tax expense on equipment @35% = $50 Million * 0.35
= $17.5 Million
2. Estimation of incremental free cash flow
0 1 2 3 4
Initial
Investment
$150,000,00
0
Cumulative
gross profit (1
+ 2)
$155,960,0
00 $165,704,715
$176,041,611.04
09
$187,005,181.40
09
Less:
Preliminary
expenses
Test Marketing $15,000,000
R&D till date $60,000,000
R&D $10,000,000
Less:
Depreciation
$25,000,00
0 $25,000,000 $25,000,000 $25,000,000