Related questions with answers
Integrative: Determining relevant cash flows Lombard Company is contemplating the purchase of a new high-speed widget grinder to replace the existing grinder. The existing grinder was purchased 2 years ago at an installed cost of 105,000 and requires 70,000 without incurring any removal or cleanup costs. To support the increased business resulting from purchase of the new grinder, accounts receivable would increase by 30,000, and accounts payable by 29,000 after removal and cleanup costs and before taxes. The firm is subject to a 40% tax rate. The estimated earnings before depreciation, interest, and taxes over the 5 years for both the new and the existing grinder are shown in the following table.
Year | New grinder | Existing grinder |
---|---|---|
1 | $43,000 | $26,000 |
2 | 43,000 | 24,000 |
3 | 43,000 | 22,000 |
4 | 43,000 | 20,000 |
5 | 43,000 | 18,000 |
b. Determine the incremental operating cash flows associated with the proposed grinder replacement. (Note: Be sure to consider the depreciation in year 6.)
Solution
VerifiedIn this problem, we will determine Lombard Company's incremental operating cashflows associated with the proposed grinder replacement.
Create a free account to view solutions
Create a free account to view solutions
Recommended textbook solutions

Principles of Managerial Finance, Brief Edition
8th Edition•ISBN: 9780134477107 (1 more)Chad J. Zutter, Scott B Smart
Financial Accounting: An Introduction to Concepts, Methods and Uses
14th Edition•ISBN: 9781111823450Clyde P Stickney, Jennifer Francis, Katherine Schipper, Roman L Weil
Financial Accounting
4th Edition•ISBN: 9781259730948Don Herrmann, J. David Spiceland, Wayne Thomas
Fundamentals of Financial Management
15th Edition•ISBN: 9781337395250 (3 more)Eugene F. Brigham, Joel F HoustonMore related questions
1/4
1/7