Questionily Enterprises is purchasing a $\$ 9.6$ million machine. It will cost $\$ 47,000$ to transport and install the machine. The machine has a preciable life of 5 years, is using straight-line depreciation, and will have no salvage value. The machine will generate incremental venues of $\$ 4.3$ million per year along with incremental costs of $\$ 1.3$ million per year. Daily's marginal tax rate is $25 \%$. You are forecasting cremental free cash flows for Daily Enterprises. If Daily Enterprises decides to use MACRS instead of straight-line depreciation, how would the incremental free cash flows associated th the new machine change? Under the TCJA of 2017, Daily Enterprises has the option to take 100\% "Bonus" depreciation in the year in which the equipment is put to use. This means that in that year, it would take the full depreciation expense equivalent to the cost of buying the equipment. If Daily Des so, which cash flows would increase and which would decrease? How does this compare to MACRS?
Under the TCJA of 2017, Daily Enterprises has the option to take 100\% "Bonus" depreciation in the year in which the equipment is put the use. This means that in that year, it would take the full depreciation expense equivalent to the cost of buying the equipment. If Daily loes so, which cash flows would increase and which would decrease? How does this compare to MACRS? (Select all the choices hat apply. A. In the case of Daily Enterprises, we assume that it puts the machine into use immediately, as seen by the MACRS expense in year 0 . Thus, Daily would take $100 \%$ of the depreciation expense in year 0 so that the entire cost of the equipment is deducted from taxes that year. B. With its taxes reduced, the incremental cash flow in year 0 is increased. With $100 \%$ of the depreciation expense used in year 0 , Daily would have no incremental depreciation in years 1 through 6 . However, by accelerating the entire tax deduction to year 0 , the present value of the incremental free cash flows would increase under bonus depreciation. C. Compared to MACRS, the effect will be less dramatic, but similar. MACRS puts more than half of the depreciation in years 0 and $1(20 \%+19.20 \%)$, whereas bonus depreciation puts $100 \%$ in year 0 . Thus, again the incremental free cash flow will be higher in year 0 , but lower in years 1 through 5 , and the present value of those cash flows will be greater. D. Compared to MACRS, the effect will be less dramatic, but similar. MACRS puts more than half of the depreciation in years 0 and $1(20 \%+32 \%)$, whereas bonus depreciation puts $100 \%$ in year 0 . Thus, again the incremental free cash flow will be higher in year 0 , but lower in years 1 through 5 , and the present value of those cash flows will be greater.