Operating cash inflows Strong Tool Company has been considering purchasing a new lathe to replace a fully depreciated lathe that would otherwise last 5 more years. The new lathe is expected to have a 5-year life and depreciation charges of $2,320 in Year 1; $3,712 in Year 2; $2,204 in Year 3; $1,392 in both Year 4 and Year 5; and $580 in Year 6. The firm estimates the revenues and expenses (excluding depreciation and interest) for the new and the old lathes to be as shown in the following table The firm is subject to a 40% tax rate on ordinary income. a. Calculate the operating cash inflows associated with each lathe. (Note: Be sure to consider the depreciation in year 6.) b. Calculate the operating cash inflows resulting from the proposed lathe replacement. c. Depict on a time line the incremental operating cash inflows calculated in part b.
Operating cash inflows Strong Tool Company has been considering purchasing a new lathe to replace a fully depreciated lathe that would otherwise last 5 more years. The new lathe is expected to have a 5-year life and depreciation charges of $2,320 in Year 1; $3,712 in Year 2; $2,204 in Year 3; $1,392 in both Year 4 and Year 5; and $580 in Year 6. The firm estimates the revenues and expenses (excluding depreciation and interest) for the new and the old lathes to be as shown in the following table The firm is subject to a 40% tax rate on ordinary income. a. Calculate the operating cash inflows associated with each lathe. (Note: Be sure to consider the depreciation in year 6.) b. Calculate the operating cash inflows resulting from the proposed lathe replacement. c. Depict on a time line the incremental operating cash inflows calculated in part b.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Subject :- Accounting
Transcribed Image Text:Data table
(Click on the icon here in order to copy the contents of the data table below into a spreadsheet.)
Year
1
2
GAW N
3
4
5
Revenue
$39,900
40,900
41,900
42,900
43,900
New Lathe
Expenses
(excluding depreciation
and interest)
$31,300
31,300
31,300
31,300
31,300
Print
Revenue
$36,700
36,700
36,700
36,700
36,700
Done
Old Lathe
Expenses
(excluding depreciation
and interest)
$26,200
26,200
26,200
26,200
26,200
X
Transcribed Image Text:Operating cash inflows Strong Tool Company has been considering purchasing a new lathe to replace a fully depreciated lathe that would otherwise last 5 more years.
The new lathe is expected to have a 5-year life and depreciation charges of $2,320 in Year 1; $3,712 in Year 2; $2,204 in Year 3; $1,392 in both Year 4 and Year 5; and
$580 in Year 6. The firm estimates the revenues and expenses (excluding depreciation and interest) for the new and the old lathes to be as shown in the following table
The firm is subject to a 40% tax rate on ordinary income.
a. Calculate the operating cash inflows associated with each lathe. (Note: Be sure to consider the depreciation in year 6.)
b. Calculate the operating cash inflows resulting from the proposed lathe replacement.
c. Depict on a time line the incremental operating cash inflows calculated in part b.
a. Calculate the operating cash inflows associated with the new lathe below: (Round to the nearest dollar.)
Year
Revenue
Expenses (excluding depreciation and interest)
Profit before depreciation and taxes
Depreciation
Net profit before taxes
Taxes
Net profit after taxes
Operating cash flows
Sf
SA
GA
GA
SA
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