Your company is considering whether it should replace the existing machine which has a remaining life of 5 years. The new machine can be purchased for $84,000, including installation cost. During its 5 year life, it will reduce cash operating expenses by $32,000 each year. Sales are not expected to change. The new machine will be depreciated straight-line to a zero book value. The existing machine has an annual depreciation of $11,000, and has no expected salvage value at the end of its life. The firms tax rate is 31%, and the appropriate cost of capital is 15%.

Compute the annual incremental cash flow in this replacement decision from year 1 to 5.