Marie Pty Ltd Is Considering Modernising Its Production by Purchasing

Marie Pty Ltd is considering modernising its production by purchasing a new machine and selling an old machine. The following data have been collected on this investment: $\begin{array}{c}\begin{array}{lr}\quad\quad\quad\quad\quad\underline{\text { Old Machine }}\\\text { Cost } & \$ 40,000 \\\text { Accumulated depreciation } & \$ 20,000 \\\text { Remaining life } & 4 \text { years } \\\text { Current salvage value } & \$ 5,000 \\\text { Salvage value in 4 years } & \$-0- \\\text { Annual cash operating costs } & \$ 18,000\end{array}\begin{array}{lr}\quad\quad\quad\quad\quad\underline{\text { New Machine }}\\\text { Cost } & \$ 19,000 \\\text { Estimated useful life } & 4 \text { years } \\\text { Salvage value in 4 years } & \$ 5,000 \\\text { Annual cash operating costs } & \$ 14,000\\\\\\\end{array}\end{array}$
The income tax rate is 40%, and the required rate of return is 16%. Depreciation is $5,000 per year for the old machine. The new machine would be depreciated $7,600 in 2015, $5,700 in 2016, $3,800 in 2017, and $1,900 in 2018. Assume Marie would purchase the new machine in December 2014 and dispose of the old machine in January 2015. The relevant annual pre-tax cash operating cost associated with Marie's decision will be:

A) $2,400
B) $4,000
C) $14,000
D) $18,000