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A drill press costs $30,000 and is expected to have a 10 year life. The drill press will be depreciated on a straight-line basis over 10 years to a zero estimated salvage value. This machine is expected to reduce the firm's cash operating costs by $4,500 per year. If the firm is in the 40 percent marginal tax bracket, determine the annual net cash flows generated by the drill press.

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The process for determining annual net after tax cash flows is illustrated in excel to give the student a template for future problems as well as responding to the current computations. A classic!

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You have to compute the taxes on the reduction in operating costs (because ...

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