Operating cash inflows Strong Tool Company has been considering purchasing a new lathe to replace afully depreciated lathe that would otherwise last 5 more years. The new lathe is expected to have a 5-yearlife and depreciation charges of $2,180 in Year 1; $3,488 in Year 2; $2,071 in Year 3; $1,308 in both Year 4and Year 5; and $545 in Year 6. The firm estimates the revenues and expenses (excluding depreciationand interest) for the new and the old lathes to be as shown in the following table. The firm is subject toa 40% tax rate on ordinary income.a. Calculate the operating cash inflows associated with each lathe. (Note: Be sure to consider thedepreciation 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.)DepreciationNet profit before taxesTaxesNet profit after taxesOperating cash flowsRevenueExpenses (excluding depreciation and interest)Profit before depreciation and taxesShow Transcribed TextYear1234Year5Revenue$38,40039,40040,40041,40042,400New LatheExpenses...(excluding depreciationand interest)$31,30031,30031,30031,30031,300$$$$$$$$1Revenue$34,60034,60034,60034,60034,600Old LatheExpenses(excluding depreciationand interest)$26,00026,00026,00026,00026,000

In case of decision making between implementation of old lathe and new lathe we have to consider the…

Answered: Operating cash inflows Strong Tool…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 2CE

See similar textbooks

Similar questions

Determine cash flows Natural Foods Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The new garden tool is expected to generate additional annual sales of 5,000 units at 18 each. The new manufacturing equipment will cost 120,000 and is expected to have a 10-year life and a 17,000 residual value. Selling expenses related to the new product are expected to be 3% of sales revenue. The cost to manufacture the product includes the following on a per-unit basis: Determine the net cash flows for the first year of the project, Years 29, and for the last year of the project.
Gallant Sports s considering the purchase of a new rock-climbing facility. The company estimates that the construction will require an initial outlay of $350,000. Other cash flows are estimated as follows: Assuming the company limits its analysis to four years due to economic uncertainties, determine the net present value of the rock-climbing facility. Should the company develop the facility if the required rate of return is 6%?
Initial cash flow: Basic calculation Cushing Corporation is considering the purchase of a new grading machine to replace the existing one. The existing machine was purchased 4 years ago at an installed cost of $20,700; it was being depreciated under MACRS using a 5-year recovery period. (See table for the applicable depreciation percentages.) The existing machine is expected to have a usable life of at least 5 more years. The new machine costs $35,900 and requires $5,500 in installation costs; it will be depreciated using a 5-year recovery period under MACRS. The existing machine can currently be sold for $25,700 without incurring any removal or cleanup costs. The firm is subject to a 21% tax rate. Calculate the initial cash flow associated with the proposed purchase of a new grading machine. The initial cash flow will be $ (Round to the nearest dollar.) Data table covery year 1 HY68L24557 10 11 Totals ... 3 years 33% 45% 15% 7% 100% Percentage by recovery year* 5 years 20% 32% 19% 12%…
Initial cash flow: Basic calculation Cushing Corporation is considering the purchase of a new grading machine to replace the existing one. The existing machine was purchased 3 years ago at an installed cost of $19,400; it was being depreciated under MACRS using a 5-year recovery period. (See table for the applicable depreciation percentages.) The existing machine is expected to have a usable life of at least 5 more years. The new machine costs $35,600 and requires $4,900 in installation costs; it will be depreciated using a 5-year recovery period under MACRS. The existing machine can currently be sold for $25,500 without incurring any removal or cleanup costs. The firm is subject to a 21% tax rate. Calculate the initial cash flow associated with the proposed purchase of a new grading machine. The initial cash flow will be $. (Round to the nearest dollar.) Data table (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Rounded Depreciation…
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 $2,220 in Year 1; $3,552 in Year 2; $2,109 in Year 3; $1,332 in both Year 4 and Year 5; and $555 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. a. Calculate the operating cash inflows associated with the new lathe below: (Round to the nearest dollar.) Year Revenue Expenses (excluding…
Current Attempt in Progress Pharoah Company is considering purchasing new equipment for $451,400. It is expected that the equipment will produce net annual cash flows of $61,000 over its 10-year useful life. Annual depreciation will be $45,140. Compute the cash payback period. (Round answer to 1 decimal place, e.g. 10.5.) Cash payback period years
Initial cash flow: Basic calculation Cushing Corporation is considering the purchase of a new grading machine to replace the existing one. The existing machine was purchased 2 years ago at an installed cost of $20,700; it was being depreciated under MACRS using a 5-year recovery period. (See table for the applicable depreciation percentages.) The existing machine is expected to have a usable life of at least 5 more years. The new machine costs $35,000 and requires $5,300 in installation costs; it will be depreciated using a 5-year recovery period under MACRS. The existing machine can currently be sold for $24,800 without incurring any removal or cleanup costs. The firm is subject to a 21% tax rate. Calculate the initial cash flow associated with the proposed purchase of a new grading machine. The initial cash flow will be $ (Round to the nearest dollar.)
Terminal cash flow: Replacement decision Russell Industries is considering replacing a fully depreciated machine that has a remaining useful life of 10 years with a newer, more sophisticated machine. The new machine will cost $207,000 and will require $29,200 in installation costs. It will be depreciated under MACRS using a 5-year recovery period (see the table for the applicable depreciation percentages). A $26,000 increase in net working capital will be required to support the new machine. The firm's managers plan to evaluate the potential replacement over a 4-year period. They estimate that the old machine could be sold at the end of 4 years to net $14,000 before taxes; the new machine at the end of 4 years will be worth $73,000 before taxes. Calculate the terminal cash flow at the end of year 4 that is relevant to the proposed purchase of the new machine. The firm is subject to a 21% tax rate. The terminal cash flow for the replacement decision is shown below: (Round to the nearest…
Terminal cash flow: Replacement decision Russell Industries is considering replacing a fully depreciated machine that has a remaining useful life of 10 years with a newer, more sophisticated machine. The new machine will cost $198,000 and will require $29,600 in installation costs. It will be depreciated under MACRS using a 5-year recovery period (see the table for the applicable depreciation percentages). A $27,000 increase in net working capital will be required to support the new machine. The firm's managers plan to evaluate the potential replacement over a 4-year period. They estimate that the old machine could be sold at the end of 4 years to net $13,500 before taxes; the new machine at the end of 4 years will be worth $74,000 before taxes. Calculate the terminal cash flow at the end of year 4 that is relevant to the proposed purchase of the new machine. The firm is subject to a 21% tax rate. The terminal cash flow for the replacement decision is shown below: (Round to the nearest…
Operating cash inflows A firm is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is $1.98 million plus $112,000 in installation costs. The firm will depreciate the equipment modifications under MACRS, using a 5-year recovery period (see table). Additional sales revenue from the renewal should amount to $1.27 million per year, and additional operating expenses and other costs (excluding depreciation and interest) will amount to 45% of the additional sales. The firm is subject to a tax rate of 21%. (Note: Answer the following questions for each of the next 6 years.) a. What net incremental earnings before depreciation, interest, and taxes will result from the renewal? b. What net incremental operating profits after taxes will result from the renewal? c. What net incremental operating cash inflows will result from the renewal? a. The net incremental profits before depreciation and tax are $ (Round to the nearest dollar.)…
Operating cash inflows A firm is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is $1.99 million plus $116,000 in installation costs. The firm will depreciate the equipment modifications under MACRS, using a 5-year recovery period (see table). Additional sales revenue from the renewal should amount to $1.21 million per year, and additional operating expenses and other costs (excluding depreciation and interest) will amount to 43% of the additional sales. The firm is subject to a tax rate of 40%. (Note: Answer the following questions for each of the next 6 years.) a. What incremental earnings before depreciation, interest, and taxes will result from the renewal? b. What incremental net operating profits after taxes will result from the renewal? c. What incremental operating cash inflows will result from the renewal? a. The incremental profits before depreciation and tax are $ (Round to the nearest dollar.)
Operating cash inflows A firm is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is $1.81 million plus $106,000 in installation costs. The firm will depreciate the equipment modifications under MACRS, using a 5-year recovery period (see table E ). Additional sales revenue from the renewal should amount to $1.12 million per year, and additional operating expenses and other costs (excluding depreciation and interest) will amount to 41% of the additional sales. The firm is subject to a tax rate of 40%. (Note: Answer the following questions for each of the next 6 years.) a. What incremental earnings before depreciation, interest, and taxes will result from the renewal? b. What incremental net operating profits after taxes will result from the renewal? c. What incremental operating cash inflows will result from the renewal?

SEE MORE QUESTIONS

Recommended textbooks for you

Cornerstones of Cost Management (Cornerstones Ser…

Accounting

ISBN:

9781305970663

Author:

Don R. Hansen, Maryanne M. Mowen

Publisher:

Cengage Learning

Managerial Accounting

Accounting

ISBN:

9781337912020

Author:

Carl Warren, Ph.d. Cma William B. Tayler

Publisher:

South-Western College Pub

Principles of Accounting Volume 2

Accounting

ISBN:

9781947172609

Author:

OpenStax

Publisher:

OpenStax College

Cornerstones of Cost Management (Cornerstones Ser…

Accounting

ISBN:

9781305970663

Author:

Don R. Hansen, Maryanne M. Mowen

Publisher:

Cengage Learning

Managerial Accounting

Accounting

ISBN:

9781337912020

Author:

Carl Warren, Ph.d. Cma William B. Tayler

Publisher:

South-Western College Pub

Principles of Accounting Volume 2

Accounting

ISBN:

9781947172609

Author:

OpenStax

Publisher:

OpenStax College

SEE MORE TEXTBOOKS