The annual cash flow of HCO's investment of $2,000 in equipment is $600.
Data and Calculations:
Investment in equipment = $2,000
Annual reduction in labor costs = $550
Project duration = 5 years
Annual cash flow of the investment = $600 ($2,000 x 25% + $2,000 x 1/5 x 25%)
Thus, the annual cash flow of the investment is $600.
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