Operating cash flows Strong Tool Company has been considering purchasing a new lathe to replace a fully depreciated lathe that would otherwise 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 $560 in Year 6. The firm estimates the revenues and expenses (excluding depreciation and interest) for the new and the old lathes to be as shown in the following table 4. The firm is subject to a 40% tax rate on ordinary income. a. Calculate the operating cash flows associated with each lathe. (Note: Be sure to consider the depreciation in year 6.) b. Calculate the operating cash flows resulting from the proposed lathe replacement. c. Depict on a time line the incremental operating cash flows calculated in part b. a. Calculate the operating cash flows associated with the new lathe below: (Round to the nearest dollar.) 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 (Round to the nearest dollar.) 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 (Round to the nearest dollar.) 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 (Round to the nearest dollar.) Year A Revenue Expenses (excluding depreciation and interest) Profit before depreciation and taxes Depreciation Net profit before taxes A A Taxes A Net profit after taxes Operating cash flows (Round to the nearest dollar.) 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 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 Calculate the operating cash flows associated with the old lathe below: (Round to the nearest dollar.) Year 1-5 Revenue Expenses (excluding depreciation and interest) Profit before depreciation and taxes Depreciation Net profit before taxes Taxes Net profit after taxes Operating cash flows b. Calculate the incremental (relevant) operating cash flows resulting from the proposed lathe replacement. Calculate the incremental (relevant) operating cash inflows resulting from the proposed lathe replacement below: (Round to the nearest dollar.) Year New Lathe Old Lathe Incremental Cash Flows (Round to the nearest dollar.) Year New Lathe Old Lathe A Incremental Cash Flows (Round to the nearest dollar.) Year New Lathe Old Lathe Incremental Cash Flows (Round to the nearest dollar.) Year New Lathe A Old Lathe A A Incremental Cash Flows (Round to the nearest dollar.) Year New Lathe A Old Lathe Incremental Cash Flows (Round to the nearest dollar.) Year New Lathe Old Lathe Incremental Cash Flows c. Depict on a time line the incremental operating cash flows calculated in part b. (Select the best choice below.) O A. Year W - Cash flow - $244 $894 $911 $1,198 $1,798 $224 OB. Year 0 N +- + Cash flow $5,636 $6,774 $6,791 $7,078 $7,678 $224 O C. Year + Cash flow - $244 $894 $911 $1,198 $1,798 OD. Year 0 2 3 Cash flow - $244 $894 $911 $1,198 $1,798 $224 4: Data Table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Year Revenue $38,700 39,700 40,700 41,700 42,700 New Lathe Expenses (excluding depreciation and interest) $30,800 30,800 30,800 30,800 30,800 Revenue $36,000 36,000 36,000 36,000 36,000 Old Lathe Expenses (excluding depreciation and interest) $26,200 26,200 26,200 26,200 26,200
