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Your company wants you to check into the feasibility of replacing some old equipment. For this purpose, you are given the following information for which you must calculate the series of net operating cash flows resulting from purchasing new equipment. The change in revenue (△R) is zero. The change in expenses (△E) is -$1.5 million. The change in depreciation (△D) is $300,000 for years 1 through 5 and then △D is $500,000 for years 6 through 10. The tax rate is 40%. What are the operating cash flows after-tax plus the depreciation tax shield for years 1 through 5?

Answers

Answer 1

For years 1 through 5, the operating cash flows after taxes and the depreciation tax shield total -$1,080,000.

What are the capital budgeting process's seven steps?

Payback period, discounted payment period, net present value, profitability index, internal rate of return, and modified internal rate of return are the seven crucial capital budgeting methods or strategies.

Cash Flow = (1 - tax rate) + (E - D)

By entering the specified values, we obtain:

(-$1.5 million - $300,000) (1 - 0.4) + $300,000 is the cash flow formula.

Flow of Cash = -1,080,000

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