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3 HW Score: 8.33%, 0.67 of 8 pts P11-16 (similar to) Question Help Operating cash inflows Afirm is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is $1.81 million plus $113,000 in installation costs. The firm will depreciate the equipment modifications under MACRS, using a 5-year recovery period (see table ). Additional salos revenue from the renewal should amount to $1.24 million per year, and additional operating expenses and other costs (excluding depreciation and interest) will amount to 39% 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 earings before depreciation, interest, and taxes will result from the renewal? b. What incremental net operating profits after taxes will resut from the renewal? c. What incremental operating cash inflows will result from the renewal? a. The incremental profits before depreciation and tax are $ . (Round to the nearest dollar) 4. 5 6 8 9 10 Sin 6 3 yo a. b . 1 (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year Recovery year 3 years 5 years 7 years 10 years 33% 20% 14% 10% 2 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 5 12% 9% 9% 6 5% 9% 8% 7 9% 7% 8 4% 6% 9 6% 6% 10 4% 11 Totals 100% 100% 100% 100% *These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance (200%) depreciation using the half-year convention En Print Done 19

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