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

5. Depreciable value of the new lawn mower is $1,900.

6. They are subject to a 40% tax rate.

7. The new mower is expected to be more fuel-efficient, maneuverable, and durable than the previous models and can result in reduced operating expenses of $504 per year.

8. The Thomsons will buy a maintenance contract that calls for annual payments of $121.

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.