Question

PLEASE ANSWER ALL PARTS OF THE QUESTION

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 $2,160 in Year 1; $3,456 in Year 2 $2,052 in Year 3; $1,296 in both Year 4 and Year 5, and $540 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 1 $L Data Table - X Revenue Expenses (excluding depreciation and interest) Profit before depreciation and taxes Depreciation Net profit before taxes (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Taxes Net profit after taxes Operating cash flows Revenue $39,300 40,300 41,300 42,300 43,300 New Lathe Expenses (excluding depreciation and interest) $31,900 31,900 31,900 31,900 31,900 Revenue $34,800 34,800 34,800 34,800 34,800 Old Lathe Expenses (excluding depreciation and interest) $25,600 25,600 25,600 25,600 25,600 Print Done

Answer 1

Year	New mach Cash flow						OLD mach cash flow						Incremental cashflow
	Revenue	exp( excl dep)	Depreciation	Operating margin	Operating margin after tax	Operating Cashflow	Revenue	exp( excl dep)	Depreciation	Operating margin	Operating margin after tax	Operating Cashflow
Year 1	39300	31900	2160	5240	3144	5304	34800	25600	0	9200	5520	5520	-216
Year 2	40300	31900	3456	4944	2966.4	6422.4	34800	25600	0	9200	5520	5520	902.4
Year 3	41300	31900	2052	7348	4408.8	6460.8	34800	25600	0	9200	5520	5520	940.8
Year 4	42300	31900	1296	9104	5462.4	6758.4	34800	25600	0	9200	5520	5520	1238.4
Year 5	43300	31900	1296	10104	6062.4	7358.4	34800	25600	0	9200	5520	5520	1838.4
Year 6	0	0	540	-540	-324	0	0	0	0	0	0	0	0

INCREMENTAL CASHFLOW YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 912- PZ06 940.8 1238.4 1838.4

Operating cash flows associated with new lathe
Revenue		39300
exp (excl dep)		31900
Profit before dep and tax		7400
Dep		2160
NP before taxes		5240
Taxes		2096
NP after tax		3144
Operating Cash flows		5304