Income Statement and Cash Flow
1.
Initial cash flow at t=0:
Purchase: -$700,000
Shipping and installation: -$100,000
Depreciable basis = $800,000
Old machine after taxes = $120,000 - ($120,000-$80,000)(.40) = $104,000
Initial Cash flow = -$800,000 + $104,000 = -$696,000
Depreciation:
Year 1: $800,000 * .3333 = $266,640
Year 2: $800,000 * .4445 = $355,600
Year 3: $800,000 * .1481 = $118,480
Year 4: $800,000 * .0741 = $59,280
Yearly revenue change:
Decrease operating expenses of $90,000
Incremental net cash flow at t=1:
Revenue change: $90,000
Depreciation: -$266,640
Net change BT = -$176,640
Taxes @ 40% = -$70,656
Net change AT = -$105,984
Incremental net cash flow (after depreciation) = -$105,984 + $266,640= $160,656.
Incremental net cash flow at t=2:
Revenue change: $90,000
Depreciation: -$355,600
Net change BT = -$265,600
Taxes @ 40% = -$106,240
Net change AT = -$159,360
Incremental net cash flow (after depreciation) = -$159,360 + $355,600 = $196,240.
Incremental net cash flow at t=3:
Revenue change: $90,000
Depreciation: -$118,480
Net change BT = -$28,480
Taxes @ 40% = -$11,392
Net change AT = -$17,088
Incremental net cash flow (after depreciation) = -$17,088 + $118,480 = $101,392.
Incremental net cash flow at t=4:
Revenue change: $110,000
Depreciation: -$59,280
Net change BT = $50,720
Taxes @ 40% = $20,288
Net change AT = $30,432
Incremental net cash flow (after depreciation) = $30,432 + $59,280 = $89,712.
Terminal cash flow at t=4:
Cash flow from new machine after taxes = $50,000 (1-.40) = $30,000
Terminal cash flow = $89,712 + $30,000 = $119,712.
2.
Initial cash flow at t = 0:
Purchase:
-$475,000
Shipping and installation:
-$5,000
Depreciable basis =
$480,000
Old machine after taxes = $100,000 (1-.34) =
$66,000
Initial Cash flow = -$480,000 + $66,000 =
-$414,000
Depreciation:
Year 1: $480,000 * .3333 = $159,984
Year 2: $480,000 * .4445 = $213,360
Year 3: $480,000 * .1481 = $71,088
Year 4: $480,000 * .0741 =
Initial cash flow at t=0:
Purchase: -$700,000
Shipping and installation: -$100,000
Depreciable basis = $800,000
Old machine after taxes = $120,000 - ($120,000-$80,000)(.40) = $104,000
Initial Cash flow = -$800,000 + $104,000 = -$696,000
Depreciation:
Year 1: $800,000 * .3333 = $266,640
Year 2: $800,000 * .4445 = $355,600
Year 3: $800,000 * .1481 = $118,480
Year 4: $800,000 * .0741 = $59,280
Yearly revenue change:
Decrease operating expenses of $90,000
Incremental net cash flow at t=1:
Revenue change: $90,000
Depreciation: -$266,640
Net change BT = -$176,640
Taxes @ 40% = -$70,656
Net change AT = -$105,984
Incremental net cash flow (after depreciation) = -$105,984 + $266,640= $160,656.
Incremental net cash flow at t=2:
Revenue change: $90,000
Depreciation: -$355,600
Net change BT = -$265,600
Taxes @ 40% = -$106,240
Net change AT = -$159,360
Incremental net cash flow (after depreciation) = -$159,360 + $355,600 = $196,240.
Incremental net cash flow at t=3:
Revenue change: $90,000
Depreciation: -$118,480
Net change BT = -$28,480
Taxes @ 40% = -$11,392
Net change AT = -$17,088
Incremental net cash flow (after depreciation) = -$17,088 + $118,480 = $101,392.
Incremental net cash flow at t=4:
Revenue change: $110,000
Depreciation: -$59,280
Net change BT = $50,720
Taxes @ 40% = $20,288
Net change AT = $30,432
Incremental net cash flow (after depreciation) = $30,432 + $59,280 = $89,712.
Terminal cash flow at t=4:
Cash flow from new machine after taxes = $50,000 (1-.40) = $30,000
Terminal cash flow = $89,712 + $30,000 = $119,712.
2.
Initial cash flow at t = 0:
Purchase:
-$475,000
Shipping and installation:
-$5,000
Depreciable basis =
$480,000
Old machine after taxes = $100,000 (1-.34) =
$66,000
Initial Cash flow = -$480,000 + $66,000 =
-$414,000
Depreciation:
Year 1: $480,000 * .3333 = $159,984
Year 2: $480,000 * .4445 = $213,360
Year 3: $480,000 * .1481 = $71,088
Year 4: $480,000 * .0741 =