Operating cash flows - Richard and Linda Thompson operate a local lawn maintenance service for commercial and residential property. The 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 operating 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 Thomson's will follow a 5 year MACRS.

Rounded depreciation percentages by recovery year using MACRS for first property classes

		Percentage by Recover 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%

*These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance (200%) depreciation using the half year convention.

5. depreciablet value of the new lawn mower is $1,770.

6. they re subject to a 40% tax rate.

7. the new lawn mower is expected to be more fuel-efficient, maneuverable, and durable than the previous models and can result in reduced operating expenses of $499 per year.

8. the Thompson's will buy a maintenance contract that calls for annual payments of $118.

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.

Please fill in the blank in the table.

Richard and Linda Thompson

Incremental Operating Cash Flows

Replacement of John Deere Mower

Year	1
Savings from new improved mower
Less: annual cost
Less: depreciation
Savings (loss) before taxes
Taxes (40%)
Savings (less) after taxes
Incremental operating cash flow