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Stroms Drive-In is considering replacing its old projector with a new one. The old projector was being depreciated using MACRS (5 year class). Original installed

Stroms Drive-In is considering replacing its old projector with a new one. The old projector was being depreciated using MACRS (5 year class). Original installed cost was $10,000 four years ago and it can now be sold for $2,000. The new projector will cost $18,000 and will be depreciated using MACRS (5 year class). Reduced expenses of $5,000 per year will result because of decreased labor cost to run the projector. The firm is in the 21% tax bracket.

What is the operating cash flow for year 2?

Use

Table 13.1 MACRS Depreciation Schedule

Year Class
3 years 5 years 7 years 10 years
1 41.67% 25.00% 17.85% 12.50%
2 38.89% 30.00% 23.47% 17.50%
3 14.14% 18.00% 16.76% 14.00%
4 5.30% 11.37% 11.97% 11.20%
5 11.37% 8.87% 8.96%
6 4.26% 8.87% 7.17%
7 8.87% 6.55%
8 3.34% 6.55%
9 6.56%
10 6.55%
11 2.46%
Total 100.00% 100.00% 100.00% 100.00%

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