Question
Incremental operating cash flows Richard and Linda Thomson operate a local awn maintenance service for commercial and residential property. They have been using a John Deere rding 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 S1,800. 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 an result in reduced operating expenses of $500 per year. The Thomsons will buy a maintenance contract that alls for annual payments of $120. Create an incremental operating cash flow statement for the replacement of Richard and Linda's John Deere riding mower. Show the incremental operating cash flow for the next 6 years.
Explanation / Answer
Saving $380 per year for maintenance minus the amount of depreciation that year.
new lawn mower 1 ($360) 2 ($192) 3 $38 4 $164 5 $164 6 $290