Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
14th Edition
ISBN: 9780133507690
Author: Lawrence J. Gitman, Chad J. Zutter
Publisher: PEARSON
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Question
Chapter 11, Problem 11.19P
a)
Summary Introduction
To determine:
The operating cash flows from the old lathe and the new lathe.
Introduction:
The capital budgeting is the process of making huge investments by the firms to make their capital assets grow faster such as the building of new buildings, purchase of advanced costly machineries etc.
The incremental cash flow is the additional cash flow for the firm that is generated out of the new capital investment that the firm has undertaken.
b)
Summary Introduction
To determine:
The incremental cash flows from the replacement project.
c)
Summary Introduction
To determine:
The timeline of incremental cash flows from the replacement project.
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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)
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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…
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 $2,180 in Year 1; $3,488 in Year 2; $2,071 in Year 3; $1,308 in both Year 4
and Year 5; and $545 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.)
Depreciation
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Initial cash flow: Basic calculation Cushing Corporation is considering the purchase of a new grading machine to replace the existing one. The existing
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the applicable depreciation percentages.) The existing machine is expected to have a usable life of at least 5 more years. The new machine costs $35,000 and
requires $5,300 in installation costs; it will be depreciated using a 5-year recovery period under MACRS. The existing machine can currently be sold for $24,800
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
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The initial cash flow will be $
(Round to the nearest dollar.)
Chapter 11 Solutions
Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
Ch. 11.1 - Prob. 1FOECh. 11.1 - Prob. 11.1RQCh. 11.1 - What three types of net cash flows may exist for a...Ch. 11.1 - Prob. 11.3RQCh. 11.1 - Prob. 11.4RQCh. 11.1 - Prob. 1GFCh. 11.2 - Explain how to use each of the following inputs to...Ch. 11.2 - Prob. 11.6RQCh. 11.2 - Prob. 11.7RQCh. 11.2 - Prob. 11.8RQ
Ch. 11.3 - Prob. 11.9RQCh. 11.3 - Prob. 11.10RQCh. 11.4 - Explain how the terminal cash flow is calculated...Ch. 11 - Prob. 1ORCh. 11 - Book value, taxes, and initial investment Irvin...Ch. 11 - If Halley Industries reimburses employees who earn...Ch. 11 - Iridium Corp. has spent 3.5 billion over the past...Ch. 11 - Prob. 11.3WUECh. 11 - Prob. 11.4WUECh. 11 - Prob. 11.5WUECh. 11 - Prob. 11.1PCh. 11 - Prob. 11.2PCh. 11 - Prob. 11.3PCh. 11 - Sunk costs and opportunity costs Masters Golf...Ch. 11 - Prob. 11.5PCh. 11 - Prob. 11.6PCh. 11 - Prob. 11.7PCh. 11 - Book value and taxes on sale of assets Troy...Ch. 11 - Prob. 11.9PCh. 11 - Prob. 11.10PCh. 11 - Calculating initial investment Vastine Medical...Ch. 11 - Prob. 11.12PCh. 11 - Prob. 11.13PCh. 11 - Prob. 11.14PCh. 11 - Prob. 11.15PCh. 11 - Prob. 11.16PCh. 11 - Prob. 11.17PCh. 11 - Prob. 11.18PCh. 11 - Prob. 11.19PCh. 11 - Prob. 11.20PCh. 11 - Prob. 11.21PCh. 11 - Prob. 11.22PCh. 11 - Prob. 11.23PCh. 11 - Net cash flows: No terminal value Central Laundry...Ch. 11 - Prob. 11.25PCh. 11 - Ethics Problem Cash flow projections are a central...
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