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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
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 $2,400 in Year 1; S3840 in Year 2; S2.280 n Yar3 $1,440 in both Year 4 and Year 5; and $600 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 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. New Lathe Old Lathe Expenses (excluding depreciation and interest) $31,300 31,300 31,300 31,300 31,300 Expenses (excluding depreciation and interest) $25,100 25,100 25,100 25,100 25,100 Year Revenue S40,800 41,800 42,800 43,800 44,800 Revenue $34,900 34,900 34,900 34,900 34,900 4
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