Operating cash inflows A firm is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is $1.89 million plus $108,000 in installation costs. The firm will depreciate the equipment modifications under MACRS, using a 5-year recovery period (see table LOADING... ). Additional sales revenue from the renewal should amount to $1.15 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?
Operating cash inflows A firm is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is $1.89 million plus $108,000 in installation costs. The firm will depreciate the equipment modifications under MACRS, using a 5-year recovery period (see table LOADING... ). Additional sales revenue from the renewal should amount to $1.15 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?
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter12: Capital Investment Analysis
Section: Chapter Questions
Problem 14E
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Question
Operating cash inflows A firm is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is
depreciate the equipment modifications under MACRS, using a 5-year recovery period (see table
Additional sales revenue from the renewal should amount to
$1.89
million plus
$108,000
in installation costs. The firm will LOADING...
).$1.15
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?
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