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You are thinking about replacing a hair drying machine in your barber shop. The old machine generates revenue of $40,000 per year and costs $15,000

You are thinking about replacing a hair drying machine in your barber shop. The old machine generates revenue of $40,000 per year and costs $15,000 per year to operate. Three years ago it cost $10,000 and it is being depreciated over four years using straight-line depreciation. The new machine costs $15,000 and will also be depreciated over four years. Revenues will increase to $50,000 and costs will rise to $20,000. Assuming a 40% tax rate, what is the annual cash flow in the first year of operating the new machine?

$5,500

$6,250

$4,500

$3,750

$3,500

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