=+P11–19 Operating cash flows Hoffmann-La Roche is considering replacing one permeability test equipment with a new model. The old equipment is fully depreciated and would last 3 more years. The new equipment is expected to have a 5-year life and depreciation charges of CHf 20,000 in year 1; CHf 32,000 in year 2; CHf 19,000 in year 3; and CHf 12,000 in both year 4 and year 5. The firm estimates the revenues and expenses

(excluding depreciation and interest) for the new and old machineries to be as shown in the table below. The firm is subject to a 24% tax rate, including the cantonal tax rates.

X MyLab New equipment Old equipment Year Revenue Expenses

(excluding depreciation and interest) Revenue Expenses

(excluding depreciation and interest)

1 CHf 400,000 CHf 300,000 CHf 350,000 CHf 250,000 2 410,000 300,000 350,000 250,000 3 420,000 300,000 350,000 250,000 4 430,000 300,000 350,000 250,000 5 440,000 300,000 350,000 250,000 Year 1 2 3 4 … 10 With the proposed new ship Revenue 35,500,000 35,500,000 35,500,000 35,500,000 … 35,500,000 Expenses (excluding depreciation and interest) 1,200,000 1,200,000 1,200,000 1,200,000 … 1,200,000 With the current ship Revenue 32,000,000 32,000,000 32,000,000 32,000,000 … 32,000,000 Expenses (excluding depreciation and interest) 2,600,000 2,600,000 2,600,000 2,600,000 … 2,600,000