Operating cash inflows Strong Tool Company has been considering purchasing a new lathe to replace afully depreciated lathe that would otherwise last 5 more years. The new lathe is expected to have a 5-yearlife and depreciation charges of $2,180 in Year 1; $3,488 in Year 2; $2,071 in Year 3; $1,308 in both Year 4and Year 5; and $545 in Year 6. The firm estimates the revenues and expenses (excluding depreciationand interest) for the new and the old lathes to be as shown in the following table. The firm is subject toa 40% tax rate on ordinary income.a. Calculate the operating cash inflows associated with each lathe. (Note: Be sure to consider thedepreciation 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.)DepreciationNet profit before taxesTaxesNet profit after taxesOperating cash flowsRevenueExpenses (excluding depreciation and interest)Profit before depreciation and taxesShow Transcribed TextYear1234Year5Revenue$38,40039,40040,40041,40042,400New LatheExpenses...(excluding depreciationand interest)$31,30031,30031,30031,30031,300$$$$$$$$1Revenue$34,60034,60034,60034,60034,600Old LatheExpenses(excluding depreciationand interest)$26,00026,00026,00026,00026,000

In case of decision making between implementation of old lathe and new lathe we have to consider the…

Answered: Operating cash inflows Strong Tool…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Calculating initial cash flow Vastine Medical, Inc., is considering replacing its existing computer system, which was purchased 2 years ago at a cost of $319,000. The system can be sold today for $206,000. It is being depreciated using MACRS and a 5-year recovery period (see the table computer system will cost $491,000 to purchase and install. Replacement of the computer system would not involve any change in net working capital. Assume a 21% tax rate on ordinary income and capital gains. a. Calculate the book value of the existing computer system. b. Calculate the after-tax proceeds of its sale for $206,000. c. Calculate the initial cash flow associated with the replacement project. a. The remaining book value is $ (Round to the nearest dollar.) Data table (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Recovery year 1 10 years 10% 18% 14%…
Terminal cash flow: Replacement decision Russell Industries is considering replacing a fully depreciated machine that has a remaining useful life of 10 years with a newer, more sophisticated machine. The new machine will cost $207,000 and will require $29,200 in installation costs. It will be depreciated under MACRS using a 5-year recovery period (see the table for the applicable depreciation percentages). A $26,000 increase in net working capital will be required to support the new machine. The firm's managers plan to evaluate the potential replacement over a 4-year period. They estimate that the old machine could be sold at the end of 4 years to net $14,000 before taxes; the new machine at the end of 4 years will be worth $73,000 before taxes. Calculate the terminal cash flow at the end of year 4 that is relevant to the proposed purchase of the new machine. The firm is subject to a 21% tax rate. The terminal cash flow for the replacement decision is shown below: (Round to the nearest…
Solomon Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased on an annual basis during its first two years of operation. Thereafter, it would be leased to the general public on demand. Solomon would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow: Year Year 1 Year 1 Year 2 Year 3 Year 3 Year 4 Year 5 Year 5 Nature of Item Purchase price Revenue Revenue Revenue Major overhaul Revenue Revenue Salvage value Cash Inflow $37,000 37,000 26,000 23,000 21,000 8,200 Cash Outflow $90,600 a. Payback period (accumulated cash flows) b. Payback period (average cash flows) 9,400 Required a.&b. Determine the payback period using the accumulated and average cash flows approaches. Note: Round your answers to 1 decimal place. years years
Initial cash flow: Basic calculation Cushing Corporation is considering the purchase of a new grading machine to replace the existing one. The existing machine was purchased 4 years ago at an installed cost of $20,700; it was being depreciated under MACRS using a 5-year recovery period. (See table for the applicable depreciation percentages.) The existing machine is expected to have a usable life of at least 5 more years. The new machine costs $35,900 and requires $5,500 in installation costs; it will be depreciated using a 5-year recovery period under MACRS. The existing machine can currently be sold for $25,700 without incurring any removal or cleanup costs. The firm is subject to a 21% tax rate. Calculate the initial cash flow associated with the proposed purchase of a new grading machine. The initial cash flow will be $ (Round to the nearest dollar.) Data table covery year 1 HY68L24557 10 11 Totals ... 3 years 33% 45% 15% 7% 100% Percentage by recovery year* 5 years 20% 32% 19% 12%…
Current Attempt in Progress Pharoah Company is considering purchasing new equipment for $451,400. It is expected that the equipment will produce net annual cash flows of $61,000 over its 10-year useful life. Annual depreciation will be $45,140. Compute the cash payback period. (Round answer to 1 decimal place, e.g. 10.5.) Cash payback period years
Accounting The SWEET Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $200,000. The equipment will have an initial cost of $900,000 and have a 6-year life. The salvage value is $60,000 at the end of the sixth year. If the hurdle rate is 12%, the internal rate of return is ____ %. (express your final answer in basis points, i.e., 13.14%)
Current Attempt in Progress Blossom Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $11.95 million. This investment will consist of $2.60 million for land and $9.35 million for trucks and other equipment. The land, all trucks, and all other equipment are expected to be sold at the end of 10 years for a price of $5.20 million, which is $2.25 million above book value. The farm is expected to produce revenue of $2.05 million each year, and annual cash flow from operations equals $1.95 million. The marginal tax rate is 25 percent, and the appropriate discount rate is 9 percent. Calculate the NPV of this investment. (Do not round factor values. Round final answer to 2 decimal places, e.g. 5,275.25.) NPV The project should be
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 $2,220 in Year 1; $3,552 in Year 2; $2,109 in Year 3; $1,332 in both Year 4 and Year 5; and $555 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…
Factor Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $480,000 cost with an expected four-year life and a $20,000 salvage value. Additional annual information for this new product line follows. Required 1. Determine income and net cash flow for each year of this machine’s life.2. Compute this machine’s payback period, assuming that cash flows occur evenly throughout each year.3. Compute net present value for this machine using a discount rate of 7%.
Bob Jensen Inc. purchased a $580,000 machine to manufacture specialty taps for electrical equipment. Jensen expects to sell all it can manufacture in the next 10 years. The machine is expected to have a 10-year useful life with no salvage value. Jensen uses straight-line depreciation. Jensen uses a 10% discount rate in evaluating capital investments, the investment is subject to taxes, and the projected pretax operating cash inflows are as follows: Year Pretax Cash Inflow 1 $ 58,000 2 71,000 3 107,000 4 178,000 5 214,000 6 268,000 7 241,000 8 214,000 9 107,000 10 71,000 Jensen has been paying 25% for combined federal, state, and local income taxes, a rate that is not expected to change during the period of this investment. The firm uses straight-line depreciation. Assume, for simplicity, that MACRS depreciation rules do not apply. Required: Using Excel, compute the following for…
Cash Payback Period, Net Present Value Analysis, and Qualitative Considerations The plant manager of Shenzhen Electronics Company is considering the purchase of new automated assembly equipment. The new equipment will cost $72,000. The manager believes that the new investment will result in direct labor savings of $18,000 per year for 10 years. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 a. What is the payback period on this project?fill in the blank 1 years b. What is the net present value, assuming a 12% rate of return? Use the table provided above. Round to the nearest whole dollar. Net present value…

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