Operating cash inflowsStrong Tool Company has been considering purchasing a new lathe to replace a fully depreciated lathe that would otherwise last 5 more years. The new lathe is expected to have a 5-year life and depreciation charges of $2,260 in Year 1; $3,616 in Year 2; $2,147 in Year 3; $1,356 in both Year 4 and Year 5; and $565 in Year 6. The firm estimates the revenues and expenses (excluding depreciation and interest) for the new and the old lathes to be as shown in the following table The firm is subject to a 40% tax rate on ordinary income.

a. Calculate the operating cash inflows associated with each lathe. (Note: Be sure to consider the depreciation in year 6.)

b. Calculate the operating cash inflows resulting from the proposed lathe replacement.

c. Depict on a time line the incremental operating cash inflows calculated in part b.

New Lathe Old Lathe Year Revenue Expenses Revenue Expenses excluding depreciation interest excluding depreciation interest 1 41,400 29,700 35,300 24,300 2 42,400 29,700 35,300 24,300 3 43,400 29,700 35,300 24,300 4 44,400 29,700 35,300 24,300 5 45,500 29,700 35,300 24,300