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Incremental operating cash inflows Strong Tool Company has been considering purchasing a new lathe to replace a fully depreciated lathe that will last 5 more
Incremental operating cash inflows Strong Tool Company has been considering purchasing a new lathe to replace a fully depreciated lathe that will last 5 more years. The new lathe is expected to have a 5-year life and depreciation charges of $2.240 in Year 1; $3,584 in Year 2; $2,128 in Year 3; $1,344 in both Year 4 and Year 5; and S560 in Year 6. The firm estimates the revenues and expenses (excluding depreciation) for the new and the old lathes to be as shown in the following table 8. 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 incremental (relevant) operating cash inflows resulting from the proposed lathe replacement. c. Depict on a time line the incremental operating cash inflows calculated in part b. a. Calculate the operating cash inflows associated with the new lathe below: (Round to the nearest dollar.) Year Year Revenue Expenses (excluding depreciation and interest) Profit before depreciation and taxes Depreciation Net profit before taxes Taxes Net profit after taxes Operating cash flows New Lathe Expenses (excluding depreciation and interest) $29,500 29,500 29,500 29,500 29,500 Revenue $41,700 42,700 43,700 44,700 45,700 || Old Lathe Expenses (excluding depreciation and interest) $25,400 25,400 25,400 25,400 25,400 Revenue $35,700 35,700 35,700 35,700 35,700
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