P11-16 Operating cash inflows A firm is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is $1.9 million plus $100,000 in installation costs. The firm will depreciate the equipment modifications under MACRS, using a five-year recovery period. (See Table 4.2 for the applicable depreciation percentages.) Additional sales revenue from the renewal should amount to $1,200,000 per year, and additional operating expenses and other costs (excluding depreciation and interest) will amount to 40% of the additional sales. The firm is subject to a tax rate of 21%. (Note: Answer the following questions for each of the next six years.) a. What net incremental earnings before interest, taxes, depreciation, and amortization will result from the renewal? b. What net incremental operating profits after taxes will result from the renewal? c. What net incremental operating cash flows will result from the renewal
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