You are asked to calculate the cash flows associated with the following proposal to purchase a new machine.

This machine can be purchased for $1,000,000. Assume the machine will qualify for a 10% investment tax credit. Also, assume it has a 10-year economic life.

In each of the 10 years, sales generated by this machine are estimated to be $ 300,000 a year. Operating expenses are estimated to be $100,000 a year for each of the 10 years. This machine will be depreciated on a straight-line basis, there is no salvage value.

Assume a tax rate of 40%.

a. Calculate the net after-tax cash outflow in year 0.

b. Calculate the net cash flows associated with this project for each of the years 1-10.

c. Suppose you’re told that this project will be financed with $600,000 of borrowed funds. If the interest expense
from the borrowed money will be $48,000 per year, how will this affect the net cash flow after tax you’ve
calculated? (No calculation is needed, just state the type of change)

Please detail your answer.