Question

Purple Haze Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $522768 is estimated to result in $188903 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a salvage value at the end of the project of $95806. The shop's tax rate is 29 percent. What is the OCF for year 4? (Round your final answer to the nearest dollar amount. Omit the "$" sign and commas in your response. For example, $123,456.78 should be entered as 123457.)

Modified ACRS Depreciation Allowances (Table 10.7)
Year	Three-Year	Five-Year	Seven-Year
1	33.33%	20.00%	14.29%
2	44.45	32.00	24.49
3	14.81	19.20	17.49
4	7.41	11.52	12.49
5		11.52	8.93
6		5.76	8.92
7			8.93
8			4.46

Answer 1

Time line		0	1	2	3	4
Cost of new machine		-522768
=Initial Investment outlay		-522768
5 years MACR rate			20.00%	32.00%	19.20%	11.52%
Savings			188903	188903	188903	188903
-Depreciation	=Cost of machine*MACR%		-104553.6	-167285.76	-100371.46	-60222.874
=Pretax cash flows			84349.4	21617.24	88531.544	128680.126
-taxes	=(Pretax cash flows)*(1-tax)		59888.074	15348.2404	62857.3962	91362.8897
+Depreciation			104553.6	167285.76	100371.456	60222.8736
=after tax operating cash flow			164441.674	182634	163228.852	151586