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Colors and More is considering replacing the equipment it uses to produce crayons. The equipment would...

Colors and More is considering replacing the equipment it uses to produce crayons. The equipment would cost $1.03 million, have a 12-year life, and lower manufacturing costs by an estimated $280,000 a year. The equipment will be depreciated using straight-line depreciation over its expected life to a book value of zero. Ignore bonus depreciation. The required rate of return is 13 percent and the tax rate is 23 percent. What is the annual operating cash flow?

$266,441.67

$128,150.00

$156,947.92

$155,616.67

$235,341.67
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Answer #1
Annual saving in manufacturing costs 280,000
Less: annual depreciation (1,030,000/12) 85833. 33
Increase in net operating income 194,166.67
Taxes 44658.33
Additional net income 149508.34
Add. Annual Depreciation 85833.33

Annual operatingcash flows 235,341.67

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