At the end of 3 years the market value of the old

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Unformatted text preview: ject to a 40% tax. (Table 3.2 on page 100 contains the applicable MACRS depreciation percentages.) a. Determine the initial investment associated with the proposed replacement decision. b. Calculate the incremental operating cash inflows for years 1 to 4 associated with the proposed replacement. (Note: Only depreciation cash flows must be considered in year 4.) c. Calculate the terminal cash flow associated with the proposed replacement decision. (Note: This is at the end of year 3.) d. Depict on a time line the relevant cash flows found in parts a, b, and c that are associated with the proposed replacement decision, assuming that it is terminated at the end of year 3. PROBLEMS LG1 8–1 Classification of expenditures Given the following list of outlays, indicate whether each is normally considered a capital or an operating expenditure. Explain your answers. a. An initial lease payment of $5,000 for electronic point-of-sale cash register systems. b. An outlay of $20,000 to purchase patent rights from an inventor. c. An outlay of...
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This document was uploaded on 01/19/2014.

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