Example 1. b. Assume that using the new machines discussed in Example 1.a helps increase sales by just $500,000 in each of the next seven years, but it also helps decrease operating costs by $2 million per year due to higher efficiency and lower waste. Recall that the new machines cost $15 million, and their delivery and installation cost another $200,000; they will be depreciated straight-line over ten years. What are the firm's annual operating FCFS due to this project? First of all, we should recognize it as a seven-year project. Second, the increase in sales and the decrease in costs are both cash inflows: ASales-AOp.Expenses $500,000-(-$2,000,000) = $2,500,000 per year. Third, keep in mind that if the project were not accepted, the old machines would remain in place, and they would have two years remaining on their depreciation schedule. Thus, in the first two years of the new project's life, the change in the depreciation expense would be the difference between the annual depreciation expense of the new machines and that of the old ones. The depreciation expense of the old machines was $500,000 per year, found as $6 mln/12 yrs. The depreciable value of the new machines is their cost, including delivery and installation, or $15.2 million. Since the new machines are depreciated over ten years, the annual depreciation is one-tenth of this amount, or $1.52 million.