Operating cash inflowsStrong 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 $2,020 in Year 1; $3,232 in Year 2; $1,919 in Year 3; $1,212 in both Year 4 and Year 5; and $505

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

New Lathe			Old Lathe
Year	Revenue	Expenses (excluding depreciation and interest)		Revenue	Expenses (excluding depreciation and interest)
1	$40,300	$28,600		$36,500	$24,000
2	41,300	28,600		36,500	24,000
3	42,300	28,600		36,500	24,000
4	43,300	28,600		36,500	24,000
5	44,300	28,600		36,500	24,000

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.

a. Calculate the operating cash inflows associated with the new lathe below:(Round to the nearest dollar.)

Year	1
Revenue	$	40,300
Expenses (excluding depreciation and interest)	$	28,600
Profit before depreciation and taxes	$	11,700
Depreciation	$	2,020
Net profit before taxes	$	9,680
Taxes	$	3,872
Net profit after taxes	$	5,808
Operating cash flows	$	7,828

(Round to the nearest dollar.)

Year	2
Revenue	$	41,300
Expenses (excluding depreciation and interest)	$	28,600
Profit before depreciation and taxes	$	12,700
Depreciation	$	3,232
Net profit before taxes	$	9,468
Taxes	$	3,787
Net profit after taxes	$	5,681
Operating cash flows	$	8,913

(Round to the nearest dollar.)

Year	3
Revenue	$	42,300
Expenses (excluding depreciation and interest)	$	28,600
Profit before depreciation and taxes	$	13,700
Depreciation	$	1,919
Net profit before taxes	$	11,781
Taxes	$	4,712
Net profit after taxes	$	7,069
Operating cash flows	$	8,988

(Round to the nearest dollar.)

Year	4
Revenue	$	43,300
Expenses (excluding depreciation and interest)	$	28,600
Profit before depreciation and taxes	$	14,700
Depreciation	$	1,212
Net profit before taxes	$	13,488
Taxes	$	5,395
Net profit after taxes	$	8,093
Operating cash flows	$	9,305

(Round to the nearest dollar.)

Year	5
Revenue	$	44,300
Expenses (excluding depreciation and interest)	$	28,600
Profit before depreciation and taxes	$	15,700
Depreciation	$	1,212
Net profit before taxes	$	14,488
Taxes	$	5,795
Net profit after taxes	$	8,693
Operating cash flows	$	9,905

Year	6
Revenue	$	0
Expenses (excluding depreciation and interest)	$	0
Profit before depreciation and taxes	$	0
Depreciation	$	505
Net profit before taxes	$	(505)
Taxes	$	(202)
Net profit after taxes	$	(303)
Operating cash flows	$	202

Calculate the operating cash inflows 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	$