To support the increased business resulting from

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Unformatted text preview: on both ordinary income and capital gains. The estimated profits before depreciation and taxes over the 5 years for both the new and the existing grinder are shown in the following table. (Table 3.2 on page 100 contains the applicable MACRS depreciation percentages.) Profits before depreciation and taxes Year New grinder Existing grinder 1 $43,000 $26,000 2 43,000 24,000 3 43,000 22,000 4 43,000 20,000 5 43,000 18,000 390 PART 3 Long-Term Investment Decisions a. Calculate the initial investment associated with the replacement of the existing grinder by the new one. b. Determine the incremental operating cash inflows associated with the proposed grinder replacement. (Note: Be sure to consider the depreciation in year 6.) c. Determine the terminal cash flow expected at the end of year 5 from the proposed grinder replacement. d. Depict on a time line the relevant cash flows associated with the proposed grinder replacement decision. LG4 LG5 LG6 8–25 Integrative—Determining relevant cash flows Atlantic Drydock is considering replacing an existing hoist with one of two newer, more...
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This document was uploaded on 01/19/2014.

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