Strong Tool Company has been considering purchasing a new lathe to replace a fully depreciated lathe that would otherwise last 5 more years.
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; $3,840 in Year 2; S$2,280 in Year 3; $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. 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.) New Lathe Old Lathe Expenses (excluding depreciation and interest) S30,300 30,300 30,300 30,300 30,300 Expenses (excluding depreciation and interest) $26,500 26,500 26,500 26,500 26,500 Year Revenue S38,000 39,000 40,000 41,000 42,000 Revenue $35,500 35,500 35.500 35,500 35,500 2 4 PrintDone 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; $3,840 in Year 2; S$2,280 in Year 3; $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. 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.) New Lathe Old Lathe Expenses (excluding depreciation and interest) S30,300 30,300 30,300 30,300 30,300 Expenses (excluding depreciation and interest) $26,500 26,500 26,500 26,500 26,500 Year Revenue S38,000 39,000 40,000 41,000 42,000 Revenue $35,500 35,500 35.500 35,500 35,500 2 4 PrintDone
