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 operating cash flows associated with the replacement of the old riding mower. The following data are available. 1. There are 5 years of remaining useful life on the old mower. 2. The old mower has a zero book value. Data Table 3. The new mower is expected to last 5 years. 4. The Thomsons will follow a 5-year MACRS E recovery period for the new mower. 5. Depreciable value of the new lawn mower is $1,900. 6. They are subject to a 40% tax rate. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) 7. The new mower is expected to be more fuel-efficient, maneuverable, and durable than the previous models and can result in reduced operating expenses of $497 per year. 8. The Thomsons will buy a maintenance contract that calls for annual payments of $115. Rounded Depreciation Percentages by Recovery
Year Using MACRS for Create an operating cash flow statement for the replacement of Richard and Linda’s John Deere riding mower. Show the operating cash flow for the next 6 years. First Four Property Classes Percentage by recovery year* Calculate the incremental operating cash flow statement below: (Round to the nearest dollar.) Recovery year 3 years 5 years 7 years 10 years 33% 20% 14% 10% Richard and Linda Thomson 45% 32% 25% 18% 15% 19% 18% 14% Incremental Operating Cash Flows 12% 12% Replacement of John Deere Riding Mower 9% Year Savings from new and improved mower Less: Annual maintenance cost 6% Less: Depreciation 4% Totals 100% 100% 100% 100% Savings (loss) before taxes Taxes (40%) Print Done Savings (loss) after taxes 7% 12% NO 000 12% 4% Incremental operating cash flow (Round to the nearest dollar.)
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