1–19 Operating cash flows Hoffmann-La Roche is considering replacing one permeability test equipment with a new model. The old equipment is fully depreciated and would last 3 more years. The new equipment is expected to have a 5-year life and depreciation charges of CHf 20,000 in year 1; CHf 32,000 in year 2; CHf 19,000 in year 3; and CHf 12,000 in both year 4 and year 5. The firm estimates the revenues and expenses (excluding depreciation and interest) for the new and old machineries to be as shown in the table below. The firm is subject to a 24% tax rate, including the cantonal tax rates. New equipment Old equipment Expenses (excluding depreciation and interest) Expenses (excluding depreciation and interest) Year Revenue Revenue 1 CHf 400,000 CHf 300,000 CHf 350,000 CHf 250,000 410,000 300,000 350,000 250,000 3 420,000 300,000 350,000 250,000 4 430,000 300,000 350,000 250,000 440,000 300,000 350,000 250,000 a. Calculate the operating cash flows associated with each equipment. b. Calculate the operating cash flows resulting from the proposed equipment replacement. c. Depict on a timeline the operating cash flows calculated in part b.

1–19 Operating cash flows Hoffmann-La Roche is considering replacing one permeability test equipment with a new model. The old equipment is fully depreciated and would last 3 more years. The new equipment is expected to have a 5-year life and depreciation charges of CHf 20,000 in year 1; CHf 32,000 in year 2; CHf 19,000 in year 3; and CHf 12,000 in both year 4 and year 5. The firm estimates the revenues and expenses (excluding depreciation and interest) for the new and old machineries to be as shown in the table below. The firm is subject to a 24% tax rate, including the cantonal tax rates. New equipment Old equipment Expenses (excluding depreciation and interest) Expenses (excluding depreciation and interest) Year Revenue Revenue 1 CHf 400,000 CHf 300,000 CHf 350,000 CHf 250,000 410,000 300,000 350,000 250,000 3 420,000 300,000 350,000 250,000 4 430,000 300,000 350,000 250,000 440,000 300,000 350,000 250,000 a. Calculate the operating cash flows associated with each equipment. b. Calculate the operating cash flows resulting from the proposed equipment replacement. c. Depict on a timeline the operating cash flows calculated in part b.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 4E: Determine cash flows Natural Foods Inc. is planning to invest in new manufacturing equipment to make...

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