Reference no: EM132892988

Problem - "Over sufficiently long time periods, net income equals cash inflows minus cash outflows, other than cash flows with owners. Demonstrate the accuracy of this statement in the following scenario: Two friends contributed $50,000 each to form a new business. The owners used the amounts contributed to purchase a machine for $100,000 cash. They estimated that the useful life of the machine was five years and the salvage value was $20,000. They rented out the machine to a customer for an annual rental of $25,000 a year for five years. Annual cash operating costs for insurance, taxes, and other items totaled $6,000 annually. At the end of the fifth year, the owners sold the equipment for $22,000, instead of the $20,000 salvage value initially estimated. Compute the total net income and the total cash flows other than cash flows with owners for the five-year period as a whole.