Incremental operating cash inflows—Expense reduction Miller Corporation is considering rep...

Incremental operating cash inflows—Expense reduction Miller Corporation is considering replacing a machine. The replacement will reduce operating expenses (that is, increase earnings before depreciation, interest, and taxes) by $16,000 per year for each of the 5 years the new machine is expected to last. Although the old machine has zero book value, it can be used for 5 more years. The depreciable value of the new machine is $48,000. The firm will depreciate the machine under MACRS using a 5-year recovery period (see Table 4.2 for the applicable depreciation percentages) and is subject to a 40% tax rate. Estimate the incremental operating cash inflows generated by the replacement. (Note: Be sure to consider the depreciation in year 6.)

TABLE 4.2 Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes