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Part $1$

Operating cash inflows$$A firm is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is $ $1\mathrm{.}97$

million plus $ $115$ comma $000$

in installation costs. The firm will depreciate the equipment modifications under$$ MACRS, using a$5-$year recovery period$($see table

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$).$

Additional sales revenue from the renewal should amount to $ $1\mathrm{.}12$

million per$$ year, and additional operating expenses and other costs$($excluding depreciation and$$ interest$)$ will amount to $45\%$

of the additional sales. The firm is subject to a tax rate of $21\%$

$.$

$($Note$$:

Answer the following questions for each of the next $6$ years.$)$

a$.$ What net incremental earnings before$$ depreciation, interest, and taxes will result from the$$ renewal?

b$.$ What net incremental operating profits after taxes will result from the$$ renewal?

c$.$ What net incremental operating cash inflows will result from the$$ renewal?