Question

Incremental operating cash inflows-Expense reduction Miller Corporation is considering replacing a machine. The replacement will reduce operating expenses (that is, increase earnings before depreciation, interest, and taxes) by $17,000 per year for each of the 5 years the new machine is expected to last. Although the old machine has zero book value, it can be used for 5 more years. The depreciable value of the new machine is $48,000. The firm will depreciate the machine under MACRS using a 5-year recovery囲and is subject to a 40% tax rate. Estimate the incremental operating cash inflows generated by the replacement. Note: Be sure to consider the depreciation in year 6.) Find the incremental operating cash inflows generated by the replacement for year 1 below: (Round to the nearest dollar.) Year Incremental expense savings $17,000 Incremental profits before depreciation and taxes Less: Depreciation Net profits before taxes Taxes Net profits after taxes Operating cash flows $

Answer 1

Incremental profits before depreciation and taxes	17000
Less Depreciation=48000*20%	9600
Net proft after tax	7400
Less: Tax	2960
Net profits after tax	4440
Operating cash flows= PAT+ Depreciation	14040