Hartsfield Company is considering purchasing a set of machine tools at a cost of $40,000. The purchase is expected to generate increased sales of $30,000 per year but also increased operating costs of $12,000 per year in each of the next three years. Additional profits will be taxed at a rate of 40%. The asset falls into CCA Class 43 (rate = 30%) for tax purposes and the 50% rule applies. The project has a three-year life with $5,000 salvage value. Assume the firm also requires working capital of $4000 (n=0; maintained in purchasing power) which will be recovered at the projects completion and that the machine tools will be purchased 50% on debt. The debt will be paid off in equal annual payments over the life of the project. The interest rate on the debt was negotiated at 12% annually. The general inflation rate is 10% per year (and affects everything that it normally affects). Assume a MARR = 7% . (Remember to round up/down to whole dollar figures for EVERY entry in the income statement and cash flow statement. Solutions are also rounded to the nearest dollar.)

The second year (n=2) cash flow of the project in constant dollars is: