Cuda Marine Engines, Inc. must develop the relevant cash flows for a replacement capital investment proposal. The proposed asset costs $50,000 and has installation costs of $3,000. The asset will be depreciated using a five-year recovery schedule. The existing equipment, which originally cost $25,000 and will be sold for $10,000, has been depreciated using an MACRS five- year recovery schedule and three years of depreciation has already been taken. The new equipment is expected to result in incremental before-tax net profits of $15,000 per year. The firm has a 40 percent tax rate.

a. The book value of the existing asset is ________. b. The tax effect on the sale of the existing asset results in ________. c. The initial outlay equals ________. d. The incremental depreciation expense for year 1 is ________. e. The annual incremental after-tax cash flow from operations for year 1 is ________.

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