Cameron Industries is purchasing a new chemical vapor depositor in order to make silicon chips. It will cost

$7,000,000

to buy the machine and

$15,000

to have it delivered and installed. Building a clean room in the plant for the machine will cost an additional $3 million. The machine is expected to raise gross profits by

$3,500,000

per year, starting at the end of the first year, with associated costs of $1 million for each of those years. The machine is expected to have a working life of

five

years and will be depreciated over those

five

years. The marginal tax rate is 40%. What are the incremental free cash flows associated with the new machine in year 2?

A.

$1,097,000

B.

$1,397,000

C.

$2,061,200

D.

$1,403,000