Question

Operating cash flows Richard and Linda Thomson operate a local lawn maintenance service for commercial and residential property. They have been using a John Deere riding mower for the past several years and believe that it is time to buy a new one. They would like to know the operating cash flows associated with the replacement of the old riding mower. The following data are available. 1. There are 5 years of remaining useful life on the old mower 2. The old mower has a zero book value. 3. The new mower is expected to last 5 years. 4. The Thomsons will follow a 5-year MACRS recovery period for the new mower. 5. Depreciable value of the new lawn mower is $1,710. 6. They are subject to a 40% tax rate. 7. The new mower is expected to be more fuel-efficient, maneuverable, and durable than the previous models and can result in reduced operating expenses of 5500 per year 8. The Thomsons will buy a maintenance contract that calls for annual payments of $119. Create an operating cash flow statement for the replacement of Richard and Linda's John Deere riding mower Show the operating cash flow for the next 6 years. Calculate the incremental operating cash flow statement below: (Round to the nearest dollar) Richard and Linda Thomson Incremental Operating Cash Flows Replacement of John Deere Riding Mower Year Savings from new and improved mower S Less Annual maintenance cost $ Less: Depreciation 5 Savinnene har Enter any number in the edit fields and then click Check Answer 1 5 parts Clear All remaining Check Answer

Answer 1

Below is the table showing Incremental Cash Flow for 6 years :

Year	1	2	3	4	5	6
Savings from new and improved mower	500	500	500	500	500	500
Less : Annual Maintenance Cost	119	119	119	119	119	119
Less : Depreciation (Depreciable Value * Depreciation rate)	342	547.2	324.9	205.2	205.2	85.5
Saving (Loss ) Before taxes	39	-166.2	56.1	175.8	175.8	295.5
Less: Taxes @ 40%	15.6	-66.48	22.44	70.32	70.32	118.2
Saving (Loss) After taxes	23.4	-99.72	33.66	105.48	105.48	177.3
Add : Depreciation	342	547.2	324.9	205.2	205.2	85.5
Incremental Operting Cash Flows	365.4	447.48	358.56	310.68	310.68	262.8