Question
A car currently in use was originally purchased 3 years ago for $40,000. The car is being depreciated under MACRS using a 5-year recovery period;
A car currently in use was originally purchased 3 years ago for $40,000. The car is being depreciated under MACRS using a 5-year recovery period; it has 4 years of usable life remaining. The car can be sold today to net $42,000 after removal and cleanup costs. A new car, using a 3-year MACRS recovery period, can be purchased at a price of $140,000. It requires $10,000 to install the new car. If the new car is acquired, the firm will have an increase in net working capital of $20,000. The firm is subject to a 40% tax rate. This results in the firm having an initial investment of $140,160. The revenues and expenses (excluding depreciation and interest) associated with both cars are given in the table below:
|
| New Machine: | Old Machine: | ||
| Year: | Revenues: | Expenses: | Revenues: | Expenses: |
| 1 | $175,000 | $55,000 | $115,500 | $45,500 |
| 2 | $185,000 | $55,000 | $125,500 | $50,500 |
| 3 | $185,000 | $55,000 | $130,500 | $47,000 |
Calculate the operating cash flows for years 1 through 4 associated with the new car
Calculate the operating cash flows for years 1 through 4 associated with the old car
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started