Answer
Income taxes can impact cash flows in a motor vehicle replacement decision for a taxpaying company in several ways:
1. Tax on Gain or Loss on Disposal: Taxes are levied on any gain or loss from the sale of the existing motor vehicle, affecting cash flows.
2. Tax on Operating Cost Changes: Changes in operating costs of the new vehicle can lead to different tax implications, altering cash outflows.
3. Tax on Gain or Loss at Project Termination: At the project's end, any gain or loss from the sale of the new vehicle is subject to income tax, impacting cash flows.
4. Additional Depreciation Deductions: Introducing a new vehicle may result in extra depreciation deductions, leading to tax cash savings and positively affecting cash inflows.
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