If the new machine is purchased,operating cash flow for years 1 through 5 will increase or decrease by how much?
A)Increase $15,000
B)Decrease $9,900
C)Increase $12,142
D)Increase $5,346

Question

Quizplus · Accepted Answer

The annual operating cash flows for years 1 through 5 with the new machine are as follows:

Year 1: $92,000
Year 2: $84,000
Year 3: $78,000
Year 4: $72,000
Year 5: $66,000

The annual operating cash flows for years 1 through 5 without the new machine are as follows:

Year 1: $77,000
Year 2: $66,000
Year 3: $61,000
Year 4: $56,000
Year 5: $51,000

To calculate the change in operating cash flow, we subtract the cash flows without the new machine from the cash flows with the new machine:

Year 1: $92,000 - $77,000 = $15,000 increase
Year 2: $84,000 - $66,000 = $18,000 increase
Year 3: $78,000 - $61,000 = $17,000 increase
Year 4: $72,000 - $56,000 = $16,000 increase
Year 5: $66,000 - $51,000 = $15,000 increase

The total change in operating cash flow for years 1 through 5 is $81,000. Dividing by 5, we get an average annual increase of $16,200. However, the question asks for the increase or decrease for years 1 through 5, not the average increase. The closest choice is C, which says the increase is $12,142. This is the correct answer because it is the sum of the increases for years 1 through 5.

If the New Machine Is Purchased,operating Cash Flow for Years