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Category > Business & Finance Posted 20 Jun 2017 My Price 12.00

Incremental operating cash inflows

Incremental operating cash inflows A firm is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is $1.9 million plus $100,000 in installation costs. The firm will depreciate the equipment modifications under MACRS, using a 5-year recovery period. (See Table 3.2 on page 100 for the applicable depreciation percentages.) Additional sales revenue from the renewal should amount to $1.2 million per year, and additional operating expenses and other costs (excluding depreciation) will

TABLE 3.2

Rounded Depreciation

Percentages by Recovery Year

Using MACRS for First Four

Property Classes

 

Percentage by recovery yeara

Recovery year

3 years

5 years

7 years

10 years

1

33%

20%

14%

10%

2

45

32

25

18

3

15

19

18

14

4

7

12

12

12

5

 

12

9

9

6

 

5

9

8

7

 

 

9

7

8

 

 

4

6

9

 

 

 

6

10

 

 

 

6

11

___

___

___

4

Totals

100%

100%

100%

100%

amount to 40% of the additional sales. The firm has an ordinary tax rate of 40%. (Note: Answer the following questions for each of the next 6 years.)

a. What incremental earnings before depreciation and taxes will result from the renewal?

b. What incremental earnings after taxes will result from the renewal?

c. What incremental operating cash inflows will result from the renewal?

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Status NEW Posted 20 Jun 2017 07:06 AM My Price 12.00

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