The Jersey Dairy Co. is considering purchasing new equipment that costs $90,000,

Question

The Jersey Dairy Co. is considering purchasing new equipment that costs $90,000, which will yield $40,000 in annual savings in today’s dollars. They plan to use this equipment for three years and then discard it at the end of its life. The cost will be depreciated using straight-line depreciation with a three-year recovery period. The inflation rate is 3%, and the tax rate is 40%. (a) Complete the table below, putting all values into real dollars (i.e., dollars of constant purchasing power). (You do not need to convert the resulting after-tax cash flows to present worth.)

Please show the equations used for each column

Capital Cash Flow:

Operating Cash Flow:

Cash Flow before Tax:

Depreciation Charge :

Taxable Income :

Taxes :

Cash Flow after Tax:

Explanation / Answer

Year-K Capital Cash Flow: Operating Cash Flow: inflation(1+f)^k Cash Flow before Tax: Depreciation Charge : Taxable Income : Taxes : Cash Flow after Tax: A B C D= A*C OR B*C E= 90000/3 F=D+E G=F*40% H=D-G 0 -90000 1 -90000 -90000 1 40000 1.03 41200 30000 11200 4480 36720 2 40000 1.0609 42436 30000 12436 4974.4 37461.6 3 40000 1.092727 43709.08 30000 13709.08 5483.632 38225.45

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