A Lotta Bread Corp. is replacing an entire baking line that was purchased for $420,000 and currentlyhas a book value of $60,000. The new, more efficient line, will cost $940,000 installed and can bedepreciated as a 7-year MACRS asset.
With the increased efficiency, Lotta expects annual revenues toincrease by $425,000, and operating expenses to increase by $170,000.
The older machine, which wasbeing depreciated at the straight-line rate of $20,000/year, will be sold for $30,000.
What are the netcash flows for year 2? Assume the firm's marginal tax rate is 40% and that the year 2 depreciation rate is 24.49. Please show your work