Big-Pear Corp. is considering replacing its existing equipment that is used to produce smart cell phones. This existing equipment was purchase 2 years ago at a base price of $60,000. Installation costs at the time for the machine were $8,000. The existing equipment is considered a 5-year class for MACRS. The existing equipment can be sold today for $60,000 and for $20,000 in 5 years. The new equipment has a purchase price of $100,000 and is also considered a 5-year class for MACRS. Installation costs for the new equipment are $7,000. The estimated salvage value of the new equipment in year 5 is $80,000. This new equipment is more efficient than the existing one and thus savings before taxes using the new equipment are $10,000 a year. Due to these savings, inventories will see a one time reduction of $1,000 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 3?

MACRS Fixed Annual Expense Percentages by Recovery ClassYear3-Year5-Year7-Year10-Year15-Year133.33%20.00%14.29%10.00%5.00%244.45%32.00%24.49%18.00%9.50%314.81%19.20%17.49%14.40%8.55%47.41%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%

For your answer, round to the nearest dollar, do not enter the $ sign, DO NOT USE commas to separate thousands, 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 $3,005.87 then enter 3006; if your answer is -$1,200.25 then enter -1200

For this project, the incremental cash flow in year 3 is: