Operating cash inflows Scenic Tours, Inc., is a provider of bus tours throughout New England. The corporation is considering the replacement of 10 of its older buses. The existing buses were purchased 4 years ago at a total cost of $2,700,000 and are being depreciated using MACRS and a 5-year recovery period (see table). The new buses would have larger passenger capacity and better fuel efficiency as well as lower maintenance costs. The total cost for 10 new buses is $2,970,000. Like the older buses, the new ones would be depreciated using MACRS and a 5-year recovery period. Scenic is subject to a tax rate of 40%. The following table presents revenues and cash expenses (excluding depreciation and interest) for the proposed purchase as well as the present fleet. Use all of the information given to calculate incremental (relevant) operating cash inflows for the proposed bus replacement. Year 1 2 3 4 5 6 With the proposed new buses (000) Revenue $1,853 $1,831 $1,805 $1,797 $1,859 461 Expenses (exclud. deprec. and int.) 458 481 481 500 With the present buses (000) Revenue $1,788 $1,769 $1,795 508 $1,799 503 $1,755 535 Expenses (exclud. deprec. and int.) 528 536 C $1,833 473 $1,789 511 Calculate the incremental (relevant) operating cash flows below: (Round to the nearest dollar.) Year 1 Revenues: (000) New buses Old buses Incremental revenue Expenses: (000) New buses Old buses Incremental expense Depreciation: (000) New buses Old buses Incremental depreciation Incremental depreciation tax savings @ 40% GA SA SA S 60 S 60 CA CA CA Year Revenues: (000) New buses Old buses Incremental revenue Expenses: (000) New buses Old buses Incremental expense Depreciation: (000) New buses Old buses Incremental depreciation Incremental depreciation tax savings @ 40% (Round to the nearest dollar.) $ S 000 $ SA $ $ SA SA 2 $ $ Year Revenues: (000) New buses Old buses Incremental revenue Expenses: (000) New buses Old buses Incremental expense Depreciation: (000) New buses Old buses Incremental depreciation Incremental depreciation tax savings @ 40% (Round to the nearest dollar.) 69 60 FA FA 69 GA GA GA GA 3 Year Revenues: (000) New buses Old buses Incremental revenue Expenses: (000) New buses Old buses Incremental expense Depreciation: (000) New buses Old buses Incremental depreciation Incremental depreciation tax savings @ 40% (Round to the nearest dollar.) $ $ SA GA $ 60 60 SA CA $ Year Revenues: (000) New buses Old buses Incremental revenue Expenses: (000) New buses Old buses Incremental expense Depreciation: (000) New buses Old buses Incremental depreciation Incremental depreciation tax savings @ 40% (Round to the nearest dollar.) SA $ S $ SA ]] [[ S 5 $ Year Revenues: (000) New buses Old buses Incremental revenue Expenses: (000) New buses Old buses Incremental expense Depreciation: (000) New buses Old buses Incremental depreciation Incremental depreciation tax savings @ 40% (Round to the nearest dollar.) $ $ $ SA $ $ SA $ 6 000 Year Net Incremental Cash Flows Cash flows: (000) Revenues Less: Change in expenses Less: Taxes @ 40% Depreciation tax savings Net operating cash inflows (Round to the nearest dollar.) Year Net Incremental Cash Flows Cash flows: (000) Revenues Less: Change in expenses Less: Taxes @ 40% Depreciation tax savings Net operating cash inflows (Round to the nearest dollar.) GA 60 60 CA S 60 60 SA CA 2 Year Net Incremental Cash Flows Cash flows: (000) Revenues Less: Change in expenses Less: Taxes @ 40% Depreciation tax savings Net operating cash inflows (Round to the nearest dollar.) Year Net Incremental Cash Flows Cash flows: (000) Revenues Less: Change in expenses Less: Taxes @ 40% Depreciation tax savings Net operating cash inflows (Round to the nearest dollar.) 69 GA 69 GA GA S S 60 SA $ 3 Year Net Incremental Cash Flows Cash flows: (000) Revenues Less: Change in expenses Less: Taxes @ 40% Depreciation tax savings Net operating cash inflows (Round to the nearest dollar.) Year Net Incremental Cash Flows Cash flows: (000) Revenues Less: Change in expenses Less: Taxes @ 40% Depreciation tax savings Net operating cash inflows S $ 60 CA 60 60 GA $ 5 6
