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The resulting operating cash inflows are shown in the

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Unformatted text preview: operating cash inflows are shown in the final row of Table 8.8 for each machine. The $8,000 year-6 cash inflow for the proposed machine results solely from the tax benefit of its year-6 depreciation deduction. 10. As noted in Chapter 3, it takes n 1 years to depreciate an n-year class asset under current tax law. Therefore, MACRS percentages are given for each of 6 years for use in depreciating an asset with a 5-year recovery period. 11. It is important to recognize that although both machines will provide 5 years of use, the proposed new machine will be depreciated over the 6-year period, whereas the present machine, as noted in the preceding example, has been depreciated over 3 years and therefore has remaining only its final 3 years (years 4, 5, and 6) of depreciation (12%, 12%, and 5%, respectively, under MACRS). CHAPTER 8 TABLE 8.7 373 Capital Budgeting Cash Flows Calculation of Operating Cash Inflows Using the Income Statement Format Revenue Expenses (excluding depreciation) Profits before depreciation and taxes Depreciation Net profits before taxes Taxes Net profits after taxes Depreciation Operating cash inflows TABLE 8.8 Calculation of Opera...
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