Question
I NEED TO ANSWER THIS QUESTION USING THE STRAIGHT LINE DEPRECIATION METHOD NOT MACRS! Incremental operating cash inflows A firm is considering renewing its equipment
I NEED TO ANSWER THIS QUESTION USING THE STRAIGHT LINE DEPRECIATION METHOD NOT MACRS!
Incremental operating cash inflows
A firm is considering renewing its equipment to meet increased demand for its product. The cost of equipment modification is $1.9 million plus $100,000 in instillation costs. The firm will depreciate the equipment modifications with the straight-line depreciation method. Additional sales revenue from the renewal should amount to $1.2 million per year, and additional operating expenses and other costs (excluding depreciation and interest) will amount to 40% of the additional sales. The firm is subject to a tax rate of 40%. (Note: answer the following questions for each of the 6 years.)
a. What incremental earnings before depreciation, interest, and taxes will result from the renewal?
b. What incremental net operating profits after taxes will result from the renewal?
c. What incremental operating cash inflows will result from the renewal?
Thank you!
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