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 $60,000. 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 $50,000 and for $30,000 in 3 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 is $90,000. This new equipment is more efficient than the existing one and thus savings before taxes using the new equipment are $10,000 a year. Due to these savings, inventories will see a one time reduction of $2,000 at the time of replacement. The company's marginal tax rate is 30% and the cost of capital is 12%. For this project, what is the incremental cash flow in year 1?

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 dollar, do not enter the $ sign, 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 $3,005.87 then enter 3,006; if your answer is -$1,200.25 then enter -1,200 For this project, the incremental cash flow in year 1 is: