Operating cash inflows: 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 $2340 In Year 1; $3744 in Year 2; $2223 in Year 3; $1404 in both Year 4 and 5; and $585 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 (picture below) 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 operating cash inflows resulting from the proposed lathe replacement.

c. Depict on a time line the incremental operating cash inflows calculated in part b.

Year Revenue $38,500 39,500 40,500 41,500 42,500 New Lathe Expenses (excluding depreciation and interest) $29,300 29,300 29,300 29,300 29,300 Revenue $36,200 36,200 36,200 36,200 36,200 Old Lathe Expenses (excluding depreciation and interest) $23,000 23,000 23,000 23,000 23,000