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Operating cash inflows   Strong Tool Company has been considering purchasing a new lathe to replace a...

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 $2,020 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

$

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