Purple Haze Machine Shop is considering a four-year project to improve its produ

Question

Purple Haze Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $581489 is estimated to result in $213343 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 $103452. The shop's tax rate is 33 percent. What is the OCF for year 4? (Round your final answer to the nearest dollar amount. Omit the "$" 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

Explanation / Answer

EBDT $     213,343 Less: Depreciation $        66,988 581489*0.1152 Profit before tax $     146,355 Less: Tax @ 33% $        48,297 Net income $        98,058 Add: Depreciation $        66,988 Year 4 cash flows $     165,046

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