Incremental operating cash inflows
A firm is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is $1.95 million plus $108,000 in installation costs. The firm will depreciate the equipment modifications under? MACRS, using a? 5-year recovery period. Additional sales revenue from the renewal should amount to $1.19 million per? year, and additional operating expenses and other costs? (excluding depreciation and? interest) will amount to 45% of the additional sales. The firm is subject to a tax rate of 40%. (Note?: Answer the following questions for each of the next 6? years.)
a. What incremental earnings before? depreciation, interest, and taxes will result from the? renewal?
b. What incremental net operating profits after taxes will result from the? renewal?
c. What incremental operating cash inflows will result from the? renewal?