6 P11-17 (similar to) Assigned Media Question Help Operating cash flows Richard and Linda Thomson operate a local lawn maintenance service for commercial and residential property. They have been using a John Deere riding mower for the past several years and believe that it is time to buy a new one. They would like to know the operating cash flows associated with the replacement of the old riding mower. The following data are available. 4 1. There are 5 years of remaining useful life on the old mower. 2. The old mower has a zero book value. 3. The new mower is expected to last 5 years. 5 4. The Thomsons will follow a 5-year MACRS recovery period for the new mower. 5. Depreciable value of the new lawn mower is $1,800 6. They are subject to a 40% tax rate, 7. The new mower is expected to be more fuel-efficient, maneuverable, and durable than the previous models and can result in 7 reduced operating expenses of $505 per year. 8. The Thomsons will buy a maintenance contract that calls for annual payments of $111. -ENTLO. 8 Calculate the incremental operating cash flow statement below: (Round to the nearest dollar.) 9 Richard and Linda Thomson Incremental Operating Cash Flows Replacement of John Deere Riding Mower Year Savings from new and improved mower $ Loss: Annual maintenance cost s Sin Less: Depreciation $ Savings (loss) before taxes S 1 Enter any number in the edit fields and then click Check Answer. parts Clear All Check Answer 6. 7 8 1 reduced operating expenses of $505 per year. 8. The Thomsons will buy a maintenance contract that calls for annual payments of $111. Create an operating cash flow statement for the replacement of Richard and Linda's John Deere riding mower. Show the operating cash flow for the next 6 years. Replacement of John Deere Riding Mower Year Savings from new and improved mower Less: Annual maintenance cost Less: Depreciation $ Savings (loss) before taxes Taxes (40%) Savings (loss) after taxes Incremental operating cash flow $ $ Sin $ $ the allt finide and then click Check Answer (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) 3 years 5 years 1 + 5 Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year* Recovery year 7 years 10 years 33% 20% 14% 10% 2 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 12% 9% 9% 5% 9% 8% 7 9% 7% 8 4% 9 6% 10 6% 11 4% Totals 100% 100% 100% "These percentages have been rounded to the nearest whole percent to simplify calculations while 100% retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance (200%) depreciation using the half-year convention 6% n En 5 Print Done