This is a sample question so I have the answer but I need to know the method of

Question

This is a sample question so I have the answer but I need to know the method of getting to the answer. I am not getting to the correct number. Please give detailed very simplified explanation using a financial calculator, calculator or Excel spreadsheet so that I understand how to do this please.

Your company is considering the replacement of an old delivery van with a new one that is more efficient. The old van cost $30,000 when purchased 5 years ago and is being depreciated using the simplified straight line method over a useful life of 10 years. The old van could be sold for $5,000 today. The new van has an invoice price of $75,000 and will cost an additional $5,000 to modify it to carry the company's products. Cost savings from the use of the new van are expected to be $22,000 per year for 5 years at which time the van will be sold for its estimated salvage value of $15,000. The new van will be depreciated using the simplified straight line method over its 5 year useful life. The company's tax rate is 35%/ Working capital is expected to increase by $3,000 at the inception of the project, but this amount will be recaptured at the end of year five. What is the incremental free cash flow for year one.

A. $22,250
B. $18,850
C. $21,305
D. $19,900

Please give detailed very simplified explanation using a financial calculator, calculator or Excel spreadsheet so that I understand how to do this please.
Thanks

Explanation / Answer

We have no revenue in this problem so we simply put 0. Cost savings are 22,000 so we put it under operating expense as -22,000. Since operating expenses are already negative, the -22,000 becomes positive because two negatives are a positive. We must subtract depreciation which is 16,000 (75000+5000/5years) for the new machine and 3,000 for the old machine. 30,000 divided by 5 years = 3,000. We subtract the 3,000 from 16,000 and have 13,000 depreciation. So, 22,000 operating expense - 13,000 depreciation = 9,000. Minus 35% tax = 9,000x.35 = 3,150 which leaves us with 9,000 - 3,150 = 5,850. Now, we add back the depreciation of 13,000. So, 5,850 + 13,000 = 18,850 incremental cash flow for year 1
so option B

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