US Blivet is contemplating the purchase of a more advanced blivet-extrusion machine to replace the machine currently being used in its production process. The firm's production engineers contend that the newer machine will turn out the current volume of output more efficiently. They note the following facts in support of their contention.
• The old machine can be used for four more years. It has a current salvage value of $8,000, but if held to the end of its useful life, the old machine would have an estimated final salvage value of $2,000. This is the final year that tax depreciation will be taken on the machine, and the amount of depreciation is equal to the machine's remaining depreciated (tax) book value of $4,520.
• The new, advanced blivet-extrusion machine costs $60,000. Its final salvage value is projected to be $15,000 at the end of its four-year useful life. The new machine falls into the three-year property category for MACRS depreciation.
• The new machine will reduce labor and maintenance usage by $12,000 annually.
• Income taxes on incremental profits are paid at a 40 percent rate.
Calculate the expected annual incremental cash flows for years 1 through 4, as well as the estimated initial cash outflow.