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 $60. Installation costs at the time for the machine were $6. The existing equipment is considered a 5-year class for MACRS. The existing equipment can be sold today for $40 and for $30 in 3 years. The new equipment has a purchase price of $140 and is also considered a 5-year class for MACRS. Installation costs for the new equipment are $5. The estimated salvage value of the new equipment is $80. This new equipment is more efficient than the existing one and thus savings before taxes using the new equipment are $11 a year. Due to these savings, inventories will see a one time reduction of $1 at the time of replacement. The company's marginal tax rate is 40% and the cost of capital is 12%. For this project, what is the incremental cash flow in year 2?

MACRS Fixed Annual Expense Percentages by Recovery Class

Year

3-Year

5-Year

7-Year

10-Year

15-Year

1

33.33%

20.00%

14.29%

10.00%

5.00%

2

44.45%

32.00%

24.49%

18.00%

9.50%

3

14.81%

19.20%

17.49%

14.40%

8.55%

4

7.41%

11.52%

12.49%

11.52%

7.70%

5

11.52%

8.93%

9.22%

6.93%

6

5.76%

8.93%

7.37%

6.23%

7

8.93%

6.55%

5.90%

8

4.45%

6.55%

5.90%

9

6.56%

5.91%

10

6.55%

5.90%

11

3.28%

5.91%

12

5.90%

13

5.91%

14

5.90%

15

5.91%

16

2.95%

For your answer, round to the nearest $.01, do not enter the $ sign and 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 $34.32 then enter 34.32. If your answer is -$12.25 then enter -12.25 not (12.25).

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

Answer: