LR Industries is considering the purchase of a new piece of equipment to meet th
ID: 2688280 • Letter: L
Question
LR Industries is considering the purchase of a new piece of equipment to meet the increased demand for its Model XL-4 tennis racket. The equipment costs $100,000 plus $5,000 for installation and shipping, the resulting increased production is expected to require additional NWC of $25,000. a) What is the net investment that LR Industries will make on the new equipment? b) The new equipment that LR industries will purchase would be depreciated using simplified straight-line method and is considered 10-year expected life. The equipment is expected to enable the firm expand sales by $80,000 per year with an increase in cash operating expenses amounting to 60% of the increase in sales. The firmExplanation / Answer
this can be calculated by following meathod............ a)A measure of a company's investment in capital, found by subtracting non-cash depreciation from capital expenditures. This measure helps to give a sense of how much money a company is spending on capital items (such as property, plants and equipment), which are used for operations. Calculated as: Net investment=capital expenditure- non cash depreciation b)What Is Net Annual Cash Flow?c Net annual cash flow is the difference between a company's cash inflows and cash outflows during a year from various business activities. Cash flow is the direct result of the cash transactions that a company has carried out in operations, investments and financing. Non-cash transactions that may have affected a company's income or profit do not raise or reduce the balance of a company's cash flow. Net annual cash flow can be positive or negative, as the result of a net increase or net decrease in cash, enlarging or shrinking a company's cash balance from beginning of the year. Other People Are Reading Difference Between Net Income & Cash Flow Differences Between Net Incremental Cash Flow and Net Present Value Cash Flow Statement Cash flow statement is one of the four financial statements that reports a company's net annual cash flow both by categories and in total. While income statement provides an overview of a company's revenues and expenses, as well as profits, information in the income statement alone doesn't reveal a company's cash situation. Financial statement users may combine information in the balance sheet with income statement information to determine the cash that flows in and out of a company during a year. Such results should conform with the reports on a company's cash flow statement, which actually integrates the information from both the income statement and balance sheet. Operating Cash Flow Operating cash flow refers to cash generated by a company's operating activities. Major operational cash flow includes cash received from sales revenues and cash paid for operating expenses during the year. Operational cash flow also stems from cash transactions related to current assets and current liabilities, such as accounts receivable and accounts payable. Any cash received from accounts receivable collection is an operating cash inflow, and any cash used to pay down accounts payable is an operating cash outflow. Investing Cash Flow Investing cash flow is the result of a company's selling and purchasing long-term investment assets. In other words, investing cash flow is provided or used by a company's investing activities. While selling investment assets provide and generate cash for a company, purchasing investment assets use and consume cash for a company. Because cash flow is not a concept of profitability, when counting investment sales, not only gains or losses are accounted for cash flow, but the cost basis of an investment asset is also included in cash flow calculations. Financing Cash Flow Financing cash flow is the cash flow provided or used by a company's financing activities. Financing activities may include both debt borrowing and equity issuing. While taking out a loan, issuing bonds or new shares of stock can provide cash inflow for a company, paying back a loan, redeeming bonds or buying back shares all use a company's cash. Periodic interest payments and quarterly or annual dividend payments are also financing-related activities and lead to cash outflows for a company. Cash inflows and cash outflows are compared against each other to arrive at the net cash flow for a particular business activity; afterward, net cash flow from different business activities is totaled to arrive at the net annual cash flow for a company. c)What Is Net Annual Cash Flow? Net annual cash flow is the difference between a company's cash inflows and cash outflows during a year from various business activities. Cash flow is the direct result of the cash transactions that a company has carried out in operations, investments and financing. Non-cash transactions that may have affected a company's income or profit do not raise or reduce the balance of a company's cash flow. Net annual cash flow can be positive or negative, as the result of a net increase or net decrease in cash, enlarging or shrinking a company's cash balance from beginning of the year. Cash Flow Statement Cash flow statement is one of the four financial statements that reports a company's net annual cash flow both by categories and in total. While income statement provides an overview of a company's revenues and expenses, as well as profits, information in the income statement alone doesn't reveal a company's cash situation. Financial statement users may combine information in the balance sheet with income statement information to determine the cash that flows in and out of a company during a year. Such results should conform with the reports on a company's cash flow statement, which actually integrates the information from both the income statement and balance sheet. Operating Cash Flow Operating cash flow refers to cash generated by a company's operating activities. Major operational cash flow includes cash received from sales revenues and cash paid for operating expenses during the year. Operational cash flow also stems from cash transactions related to current assets and current liabilities, such as accounts receivable and accounts payable. Any cash received from accounts receivable collection is an operating cash inflow, and any cash used to pay down accounts payable is an operating cash outflow. Through uppar instructions we can calculate the required cash flow.......
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