Thank you.

Quentin: The following table shows the income statement of a company. In the next year, sales, contribution margin, and SG&A expenses each hold the same value as the past year. There is no extraordinary income or expense in the company that is not related to the core business (i.e., Other Income is zero for the next year). However, an existing piece of equipment that had an original cost of $14,000,000 (no salvage value was assumed at the time the original depreciation schedule was created) is retired in the beginning of the next year with an accumulated depreciation of $10,000,000. In the beginning of the next year, this old equipment is sold in the market for $4,000,000 and a new piece of equipment is bought for $21,000,000 and installed. The management of the company determines to use the same depreciation period of '1' years for the new piece of equipment that it had used for the old piece of equipment, also assuming the salvage value is zero. 1. What is the operating cash ow and the net cash ow in the past year? 2. How long was the old piece of equipment in service? Is an extraordinary adjustment required (i.e., is there any Other Income) at the time of its retirement? 3. Complete the income statement for the next year (Assume that the depreciation for all items other than the new piece of equipment is unchanged; use a straight line depreciation method for the new equipment). What is the operating cash ow in the next year? What is the net cash flow in the next year? Just given the data for the two years, was the company sound in buying the new piece of equipment? Why? 7. If the old piece of equipment is sold at $1,000,000 instead of $4,000,000, and assume that you show the impact of the unrecovered depreciation on the old piece of equipment in Other Income, what is the value of Other Income in the next year in this case? Does operating cash 9'3\"?\" ow change? Income Statement Past Year Next Year Revenue $18,232,000 $1 8,232,000 Allowance for Bad Debt $182,000 $182,000 Net Revenue $18,050,000 $18,050,000 Cost of Goods Sold $12,179,000 $12,179,000 Contribution Margin $5,871,000 $5,871,000 Contribution Margin, % 32.53% 32.53% Sales, General, and Administrative Expense All Items except Depreciation $2,796,000 $2,296,000 Depreciation $2,430,000 Operating Income $645,000 Other Income $400,000 Net Income $1,045,000 Operating Cash Flow Net Cash Flow