Top-Ten Inc. is considering replacing its existing machine that is used to produce musical CDs.

This existing machine was purchase 3 years ago at a base price of $60,000. Installation costs at the time for the machine were $1,000.

The existing machine is considered a 3-year class for MACRS. The existing machine can be sold today for $40,000 and for $10,000 in 3 years.

The new machine has a purchase price of $100,000 and is also considered a 3-year class for MACRS.

Installation costs for the new machine are $6,000. The estimated salvage value of the new machine is $30,000.

This new machine is more efficient than the existing one and thus savings before taxes using the new machine are $7,000 a year.

The company's marginal tax rate is 20% and the cost of capital is 12%. For this project, what is the incremental cash flow in year 1?

MACRS Fixed Annual Expense Percentages by Recovery Class
Year	3-Year	5-Year	7-Year	10-Year	15-Year
1	33.33%	20.00%	14.29%	10.00%	5.00%
2	44.45%	32.00%	24.49%	18.00%	9.50%
3	14.81%	19.20%	17.49%	14.40%	8.55%
4	7.41%	11.52%	12.49%	11.52%	7.70%
5		11.52%	8.93%	9.22%	6.93%
6		5.76%	8.93%	7.37%	6.23%
7			8.93%	6.55%	5.90%
8			4.45%	6.55%	5.90%
9				6.56%	5.91%
10				6.55%	5.90%
11				3.28%	5.91%
12					5.90%
13					5.91%
14					5.90%
15					5.91%
16					2.95%