Big$-$Pear Corp. is considering replacing its existing equipment that is used to produce

smart cell phones. This existing equipment was purchase $3$ years ago at a base price

of $$40,000.$ Installation costs at the time for the machine were $$8,000.$ The existing

equipment is considered a $5-$year class for MACRS. The existing equipment can be

sold today for $$40,000$ and for $$20,000$ in $5$ years. The new equipment has a

purchase price of $$110,000$ and is also considered a $5-$year class for MACRS.

Installation costs for the new equipment are $$6,000.$ The estimated salvage value of

the new equipment in $5$ years is $$90,000.$ This new equipment is more efficient than

the existing one and thus savings before taxes using the new equipment are $$20,000$

a year. Due to these savings, inventories will see a one time reduction of $$3,000$ at

the time of replacement. The company's marginal tax rate is $20\%$ and the cost of

capital is $12\%.$For the new machine project, What is the project incremental

recurring Cash Flows $($RCF$)$ in year $2?($RCF is also known as operating cash flow or

net cash flow$).$

MACRS Fixed Annual Expense Percentages by Recovery Class

For your answer, round to the nearest dollar, do not enter the $ sign, DO NOT USE

commas to separate thousands, use a negative sign in front of first number is the

cash flow is negative $($do not use parenthesis to indicate negative cash flows$).$ For

example, if your answer is $$3,005\mathrm{.}87$ then enter $3006$ ; if your answer is $-$$$1,200\mathrm{.}25$

then enter $-1200$

For this project, the incremental recurring cash flow in year $2$ is:

Your Answer:

Answer