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Incremental operating cash flows Richard and Linda Thomson operate a local lawn maintenance service for commercial and residential property.

Incremental operating cash flows 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 incremental (relevant) cash flows

associated with the replacement of the old riding mower. The following data are

available:

There are 5 years of remaining useful life on the old mower.

The old mower has a zero book value.

The new mower is expected to last 5 years.

The Thomsons will follow a 5-year MACRS recovery period for the new mower.

Depreciable value of the new mower is $1,800.

They are subject to a 40% tax rate.

The new mower is expected to be more fuel efficient, maneuverable, and durable

than previous models and can result in reduced operating expenses of $500 per year.

The Thomsons will buy a maintenance contract that calls for annual payments

of $120.

Create an incremental operating cash flow statement for the replacement of Richard

and Linda

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