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NEED ANSWER NOW The company is considering a project to improve their production efficiency. They are trying to decide whether it is a good idea

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The company is considering a project to improve their production efficiency. They are trying to decide whether it is a good idea or not to buy an automated machine which will result in reducing pre-tax costs by $200,000 for each of the next five years. The machine will cost $475,000 and the IRS says it must be depreciated as 5-year MACRS equipment. The company believes they can sell the machine for $70,000 at the end of five years. The machine will require an initial investment to increase inventory by $20,000, and then an additional inventory increase of $5,000 for each succeeding year of the project. At the end of the project, inventory will return to its normal level. The companys tax rate is 35% and uses a discount rate of 14% APR with annual compounding.

Year

5-year MACRS

1

20.00%

2

32.00%

3

19.20%

4

11.52%

5

11.52%

6

5.76%

What is the operating cash flow (NOPAT + depreciation) at the end of the fourth year () ?

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