P3 Operating cash flows. Strong Tool Partners 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 $2,000 in year 1; $3,200 in year 2; $1,900 in year 3; $1,200 in both year 4 and year 5; and $500 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 table below. The firm is subject to a 40% tax rate. a. b. C. Year 1 23 3 4 5 Sheet1 Recovery year Answer - fill in the blue boxes below. Table 4.2 Revenue $40,000 41,000 42,000 1234567 43,000 44,000 7 8 9 + Calculate the operating cash flows associated with each lathe. (Note: Be sure to consider the depreciation in year 6.) Calculate the operating cash flows resulting from the proposed lathe replacement. Depict on a timeline the operating cash flows calculated in part b. 3 years 33% 45% New lathe depreciation and interest) $30,000 30,000 30,000 30,000 30,000 15% 7% Percentage by recovery year 7 years 14% 25% 5 years 20% 32% 19% 12% 12% 5% 18% 12% 9% 9% 9% 4% Revenue $35,000 35,000 35,000 10 years 10% 18% 14% 12% 9% 8% 7% 6% 6% 35,000 35,000 Old lathe depreciation and interest) $25,000 25,000 25,000 Tax rate 25,000 25,000 40%
P3 Operating cash flows. Strong Tool Partners 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 $2,000 in year 1; $3,200 in year 2; $1,900 in year 3; $1,200 in both year 4 and year 5; and $500 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 table below. The firm is subject to a 40% tax rate. a. b. C. Year 1 23 3 4 5 Sheet1 Recovery year Answer - fill in the blue boxes below. Table 4.2 Revenue $40,000 41,000 42,000 1234567 43,000 44,000 7 8 9 + Calculate the operating cash flows associated with each lathe. (Note: Be sure to consider the depreciation in year 6.) Calculate the operating cash flows resulting from the proposed lathe replacement. Depict on a timeline the operating cash flows calculated in part b. 3 years 33% 45% New lathe depreciation and interest) $30,000 30,000 30,000 30,000 30,000 15% 7% Percentage by recovery year 7 years 14% 25% 5 years 20% 32% 19% 12% 12% 5% 18% 12% 9% 9% 9% 4% Revenue $35,000 35,000 35,000 10 years 10% 18% 14% 12% 9% 8% 7% 6% 6% 35,000 35,000 Old lathe depreciation and interest) $25,000 25,000 25,000 Tax rate 25,000 25,000 40%
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
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155 P3 Operating cash flows. Strong Tool Partners has been considering purchasing a new lathe to replace a fully depreciated lathe that would otherwise lasti
156 5 more years. The new lathe is expected to have a 5-year life and depreciation charges of $2,000 in year 1; $3,200 in year 2; $1,900 in year 3; $1,200 in
157 both year 4 and year 5; and $500 in year 6. The firm estimates the revenues and expenses (excluding depreciation and interest) for the new and the old
158 lathes to be as shown in the table below. The firm is subject to a 40% tax rate.
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New lathe
depreciation and interest)
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Calculate the operating cash flows associated with each lathe. (Note: Be sure to consider the depreciation in year 6.)
Calculate the operating cash flows resulting from the proposed lathe replacement.
Depict on a timeline the operating cash flows calculated in part b.
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