Snappel Inc. is considering the purchase of new equipment for a purchase price of \(\$ 105,000\). The equipment has an estimated useful life of 5 years and an estimated cash salvage value of \(\$ 8,000\). Incremental annual fixed costs for operating the equipment over its 5 -year useful life are as follows: Year 1, \(\$ 18,000\); Year 2, \(\$ 20,000\); Year \(3, \$ 20,000\); Year 4, \(\$ 25,000\); and Year \(5, \$ 22,000\). Incremental contribution margin generated from additional sales are estimated as follows: Year 1, \(\$ 35,000\); Year 2, \(\$ 50,000\); Year 3, \(\$ 55,000\); Year 4, \(\$ 55,000\); and Year \(5, \$ 60,000\). The company uses the straight-line method for depreciation purposes.

a. Prepare a time line for this purchase that shows cash flows over the life of the proposed equipment purchase. Ignore taxes.

b. Prepare a time line for this purchase that shows the earnings effects for the equipment's five year life on an accrual basis. Ignore taxes.

More practice: \(E 15-18\) Solution on p. 15-45.

c. What is the net amount of cash flows from part (a) over the 5 -year period?

d. What is the net amount of accounting earnings from part (b) over the 5 -year period?