Big-Pear Corp. is considering replacing its existing equipment that is used to produce smart cell phones. This existing

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Big-Pear Corp. is considering replacing its existing equipment
that is used to produce smart cell phones. This existing equipment
was purchase 3 years ago at a base price of $60. Installation costs
at the time for the machine were $6. The existing equipment is
considered a 5-year class for MACRS. The existing equipment can be
sold today for $40 and for $30 in 3 years. The new equipment has a
purchase price of $140 and is also considered a 5-year class for
MACRS. Installation costs for the new equipment are $5. The
estimated salvage value of the new equipment is $80. This new
equipment is more efficient than the existing one and thus savings
before taxes using the new equipment are $11 a year. Due to
these savings, inventories will see a one time reduction of $1 at
the time of replacement. The company's marginal tax rate is 40% and
the cost of capital is 12%. For this project, what is the
incremental cash flow in year 2?
MACRS Fixed Annual Expense Percentages by Recovery Class
8.55%
For your answer, round to the nearest $.01, do not enter the $
sign and use a negative sign in front of first number is the cash
flow is negative (do not use parenthesis to indicate negative cash
flows). For example, if your answer is $34.32 then
enter 34.32. If your answer is -$12.25
then enter -12.25 not (12.25).
For this project, the incremental cash flow in year 2
is:
Answer: