Land cruisers Plus has operated an online retail shop selling off-road truck parts. As the name implies, the firm specializes in parts for the venerable Toyota FJ40 that is known throughout the world for its durability and off-road prowess. The fact that Toyota stopped building and exporting the FJ40 to the Australian market in 1982 meant that FJ40 owners depended more and more on re-manufactured parts to keep their beloved off-road vehicles running. More and more FJ40 owners are replacing the original inline six-cylinder engines with a modem Australian-built engine. The engine replacement requires mating the new engine with the Toyota drive train. Land cruisers' owners had been offering engine adaptor kits for some time but have recently decided to begin building their own units. To make the adaptor kits, the firm would need to invest in a variety of machine tools costing a total of$70000.Landcruisers' management estimates they will be able to borrow $40000 from the firm's bank at an annual interest rate of 8%. The remaining funds would have to be supplied by Land cruisers' owners. The firm estimates they will be able to sell 100 units a year for $1300 each. The units would cost$1000 each in cash expenses to produce (this does not include depreciation expense of $7000 per year or interest expense of $3200). After all expenses, the firm expects earnings before interest and tax of $23 000. The firm has a marginal tax rate of 30%, which results in net profit of $13 860 per year over the 10-year expected life of the equipment.

What is the annual free cash flow Land Cruisers Plus should expect to receive from the investment in year 1, assuming it does not require any other investments in either capital equipment or working capital and the equipment is depreciated over a 10-year life to a zero salvage and book value? How should the financing cost associated with the $40000 loan be incorporated into the analysis of cash flow?