A company has been considering purchasing a new lathe to replace an old fully depreciated lathe that will last 5 more years. The new lathe is expected to
have a 5-year life and depreciation charges of
$2000 in year 1
$3200 in year 2
$1900 in year 3
$1200 in year 4
$1200 in year 5
$500 in year 6
The firm estimates the revenues and expenses for the new and old lathes shown below and the firm is in the 40% tax bracket.
Calculate the Operating Cash Flows associated with each lathe.
OLD LATHE
Year Revenue Expenses Excluding Depreciation and Interest
1 $40000 $30000
3 $42000 $30000
OLD LATHE
Year Revenue Expenses Excluding Depreciation and Interest
1 $35000 $25000
3 $35000 $25000