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Incremental operating cash flows Richard and Linda Thomson operate a local lawn maintenance service for commercial and residential property.
Incremental 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 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 $1,800.
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 can result in reduced operating expenses of $500 per year.
The Thomsons will buy a maintenance contract that calls for annual payments
of $120.
Create an incremental operating cash flow statement for the replacement of Richard
and Linda
