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 depreciation and interest) Profit before depreciation and taxes Depreciation Net profit before taxes Taxes Net profit after taxes Operating cash flows $ $ $ $ $ $ $ $ 1 Data table (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) New Lathe Year 1 2 3 4 5 Revenue $38,600 39,600 40,600 41,600 42,600 Expenses (excluding depreciation and interest) $28,700 28,700 28,700 28,700 28,700 Print Done Revenue $35,700 35,700 35,700 35,700 35,700 Old Lathe Expenses (excluding depreci and interest) Clear all $25,000 25,000 25,000 25,000 25,000 X Check answer
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 depreciation and interest) Profit before depreciation and taxes Depreciation Net profit before taxes Taxes Net profit after taxes Operating cash flows $ $ $ $ $ $ $ $ 1 Data table (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) New Lathe Year 1 2 3 4 5 Revenue $38,600 39,600 40,600 41,600 42,600 Expenses (excluding depreciation and interest) $28,700 28,700 28,700 28,700 28,700 Print Done Revenue $35,700 35,700 35,700 35,700 35,700 Old Lathe Expenses (excluding depreci and interest) Clear all $25,000 25,000 25,000 25,000 25,000 X Check answer
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
Related questions
Question
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 $2,220 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 depreciation and interest)
Profit before depreciation and taxes
Depreciation
Net profit before taxes
Taxes
Net profit after taxes
Operating cash flows
$
$
$
$
$
$
$
$
1
Data table
(Click on the icon here in order to copy the contents of the data table below into a spreadsheet.)
Old Lathe
Year
1
-2345
Revenue
$38,600
39,600
40,600
41,600
42,600
New Lathe
Expenses
(excluding depreciation
and interest)
$28,700
28,700
28,700
28,700
28,700
Print
Done
Revenue
$35,700
35,700
35,700
35,700
35,700
Expenses
(excluding depreci
and interest)
Clear all
- X
$25,000
25,000
25,000
25,000
25,000
Check answer
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 5 steps with 6 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education