Find the solution sheet attached herewith.FIN 306 HW#2Calculating Operating Cash InflowsProblem #1 (14 points)My machine shop is considering purchasing a brand new metal lathe to replace a fully depreciated one I havebeen using and can use for another 5 years if I choose to. The new lathe I am considering is expected to have a 5 year lifeand would have depreciation expenses of:Year 1 = $2,000Year 2 = $3,200Year 3 = $1,900Year 4 & 5 = $1,200Year 6 = $500My estimates of revenue and expenses for both the new & existing lathes are as followsNew LatheCurrent latheYearRevenueExpenses (exc. Depreciation & interest)RevenueExpenses (exc. Depreciation & interest)12345$40,000$41,000$42,000$43,000$44,000$30,000$30,000$30,000$30,000$30,000$35,000$35,000$35,000$35,000$35,000$25,000$25,000$25,000$25,000$25,000My company is subject to a 40% tax123Calculate the Operating Cash Inflows for each lathe (be sure to consider the depreciation in year 6)Calculate the incremental (relevant) operating cash inflows resulting from the proposed replacementShow these incremental cash flows on a timelineAnswer 1.1. Operating Cash FlowYearRevenueNew LatheExpensesProfit before Depreciation(excl.Dep & Taxdepreciation)PBTTaxesNet ProfitOperatingCash Flows140,00030,00010,0002,0008,0003,2004,800$6,800241,00030,00011,0003,2007,8003,1204,6807,880342,00030,00012,0001,90010,1004,0406,0607,960443,00030,00013,0001,20011,8004,7207,0808,280544,00030,00014,0001,20012,8005,1207,6808,8806000500-500-200-300200Old Lathe1 to 535,00025,00010,000010,0004,0006,0006,0002. Incremental (relevant) Operating Cash FlowsYearNew Lathe – OperatingCash FlowsOld Lathe – OperatingCash Flows16800600080027880600018803796060001960482806000228058880600028806200Incremental CashFlows2003. Incremental Cash Flows Time line0$800$1,88012$1,9603$2,2804$2,880$20056Calculating Terminal Cash FlowProblem #2 (5 points)I am considering replacing one of my fully depreciated golf ball labeling machines with a newer one. Eventhough it’s fully depreciated, I can still get another 10 years out of it if I choose. A new machine will cost me $200,000and another $30,000 to install it. I would depreciate this new machine under a 5 year recovery period. If I decide to gowith the new machine, it will increase my net working capital by $25.000.My team decides to evaluate this decision over a 4 year period. They estimate that at the end of 4 years, I couldsell the curre…

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