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. year 1: 20% year 2: 32% year 3: 19% year 4: 12% year 5: 12% year 6: 5% 5. Depreciable value of the new lawn mower is $1,790. 6. They are subject to a 32% 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 $484 per year. 8. The Thomsons will buy a maintenance contract that calls for annual payments of $118. 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.     Richard and Linda Thomson Incremental Operating Cash Flows Replacement of John Deere Riding Mower Year 1 Savings from new and improved mower $   Less: Annual maintenance cost $   Less: Depreciation $   Savings (loss) before taxes $   Taxes (32%) $   Savings (loss) after taxes $   Incremental operating cash flow $

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
icon
Related questions
Question
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.
year 1: 20%
year 2: 32%
year 3: 19%
year 4: 12%
year 5: 12%
year 6: 5%
5. Depreciable value of the new lawn mower is $1,790.
6. They are subject to a 32% 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 $484 per year.
8. The Thomsons will buy a maintenance contract that calls for annual payments of $118.
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.
 
 
Richard and Linda Thomson
Incremental Operating Cash Flows
Replacement of John Deere Riding Mower
Year 1
Savings from new and improved mower
$
 
Less: Annual maintenance cost
$
 
Less: Depreciation
$
 
Savings (loss) before taxes
$
 
Taxes (32%)
$
 
Savings (loss) after taxes
$
 
Incremental operating cash flow
$
 
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 2 images

Blurred answer
Similar questions
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education