A firm is considering renewing its equipment in order to meet increased demand for its product. The cost of renewal will be $475,000 and the installation cost will be $25,000. Depreciable life of the renewed equipment is 5 years using the prime cost (straight line) method. Additional sales revenue is $300,000 per year, additional costs excluding depreciation is approximately 40% of sales value. Tax rate is 30%. a) Calculate the incremental earnings after tax. b) Calculate the incremental operating cash inflows.
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