Problem 4: Incremental cash flow A $1,000,000 investment (i.e., manufacturing equipment) is depreciated using the modified accelerated cost recovery system. It requires $150,000 in additional inventory and will increase accounts payable by $50,000. It will generate $400,000 in revenue and $150,00o in cash expenses, annually, and the tax rate is 21%. What is the incremental cash flow in years o, 1, 7 and 8? Table of Property Class and Recovery Period Property Class (Recovery Period) Types of Capital Assets 3 years Research equipment and specialty tools 5 years Computers, typewriters, copiers, duplicating machines, cars, light-duty trucks, qualified technological equipment, and other similar assets 7 years Office furniture, fixtures, most manufacturing equipment railroad track, and single-purpose agricultural and horticul tural structures 10 years 15 years 20 years 27.5 years Equipment used in petroleum refining or in the manufacturing of tobacco products and certain food products Public utility properties, type 1 Public utility properties, type 2 Residential real property Office buildings, shopping centers, warehouses, and manufacturing facilities Railroad gradings and tunnel bores 39 years 50 years Table A-1. 3-, 5-, 7., 10-, 15-, and 20-Year Property Half-Year Convention Depreciation rate for recovery period 3-year 5-year 7-year 10-year 15-year Year 20-year 5001 33.33% 44.45 14.81 20.00% 32.00 19.20 11.52 11.52 14.29% 24.49 17.49 12.49 BOS 10.00% 18.00 14.40 11.52 9.22 3.750% 7.219 6.677 6.177 5.713 5.76 5.285 4.888 4.522 4.46 4.461 5.91 5.00 5.91 4.462 4.461 4.462 4.461 4.462 2.95 4.461 4.42 4.461 4.462 4.461 2 231