A-C

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 $2,380 in Year 1; $3,808 in Year 2; $2,261 in Year 3; $1,428 in both Year 4 and Year 5; and $595 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 B. 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. Data Table a. Calculate the operating cash inflows associated with the new lathe below: (Round to the Year 1 (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Revenue $ $ $ Expenses (excluding depreciation and interest) Profit before depreciation and taxes Depreciation Net profit before taxes Year New Lathe Expenses (excluding depreciation and interest) $30,300 30,300 30,300 30,300 30,300 Revenue $38,700 39,700 40,700 41,700 42,700 2. Old Lathe Expenses (excluding depreciation and interest) $24,500 24,500 24,500 24,500 24,500 Revenue $36,500 36,500 36,500 36,500 36,500 Taxes $ 3 Net profit after taxes $ 4 5 $ Operating cash flows Print Done Enter any number in the edit fields and then click Check