Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Incremental operating cash flows Richard and Linda Thomson operate a local lawn maintenance service for commercial and residential property. They have been using a John

Incremental operating cash flowsRichard 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 incremental (relevant) cash flows associated with the replacement of the old riding mower. The following data are available.

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.

4. The Thomsons will follow a 5-year MACRS recovery period for the new mower.

Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year*

Recovery year 3 years 5 years 7 years 10 years 1 33% 20% 14% 10% 2 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 5 12% 9% 9% 6 5% 9% 8% 7 9% 7% 8 4% 6% 9 6% 10 6% 11 4% Totals 100% 100% 100% 100%

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 will require less maintenance than the previous models which should result in reduced operating expenses of $500 per year.

8. The Thomsons will buy a maintenance contract that calls for annual payments of $120

for the expected life of the mower.

Create an incremental operating cash flow statement for the replacement of Richard and Linda's John Deere riding mower. Show the incremental operating cash flow for the next 6 years.

**Round to the nearest dollar

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Understanding Terrorist Finance

Authors: T. Wittig

2011th Edition

0230291848, 978-0230291843

More Books

Students also viewed these Finance questions

Question

3. What types of behavior do you typically use yourself?

Answered: 1 week ago