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# Earnings/cash flow effect upon purchase of asset

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1.You plan to deposit \$800 in a bank account now and \$600 at the end of the year. If the account earns 7% interest per year, what will be the balance in the account right after you make the second deposit?

The balance in the account right after you make the second deposit will be \$

2. Nokela Industries purchases a \$40.0 million cyclo-converter. The cyclo-converter will be depreciated by \$10.0 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?
b. What impact will the cost of the purchase have on the firm's cash flow for the next four years?

A. What impact will the cost of the purchase have on earnings for each of the next four years?

Earnings will _____ by \$ ___million each year for four years. (Select from the drop-down menu and round to one

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 \$

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#### Solution Summary

.You plan to deposit \$800 in a bank account now and \$600 at the end of the year. If the account earns 7% interest per year, what will be the balance in the account right after you make the second deposit?

The balance in the account right after you make the second deposit will be \$

2. Nokela Industries purchases a \$40.0 million cyclo-converter. The cyclo-converter will be depreciated by \$10.0 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?
b. What impact will the cost of the purchase have on the firm's cash flow for the next four years?

A. What impact will the cost of the purchase have on earnings for each of the next four years?

Earnings will _____ by \$ ___million each year for four years. (Select from the drop-down menu and round to one

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 \$

\$2.19