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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 mow 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 follow data are available.

There are $5$ years of remaining useful life on the old mower.

The old mower has a zero book value.

The new mower is expected to last $5$ years.

The Thomsons will follow a $5-$year MACRS

Depreciable value of the new lawn mower is $$1,890.$

They are subject to a $32\%$ tax rate.

The new mower is expected to be more fuel$-$efficlent, maneuverable, and durable than the previous models and can result in reduced operating expenses of $$482$ per year.

The Thomsons will buy a maintenance contract that calls for annual payments of $$122.$

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.

Richard and Linda Thomson

Incremental Operating Cash Flows

Replacement of John Deere Riding Mower

$\backslash$table$[[$Replacement of John Deere Riding Mower,$],[$Year$,,1],[$Savings from new and improved mower,$$,],[$Less: Annual maintenance cost,$$,],[$Less: Depreciation,$$,],[$Savings $($loss$)$ before taxes,$$,]]$

example

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Data table

$($Click on the icon here in order to copy the contents of the data table below into a spreadsheet.$)$

Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes

$\backslash$table$[[$Recovery year,Percentage by recovery year$*],[3$ years,$5$ years,$7$ years,$10$ years$],[1,33\%,20\%,14\%,10\%$