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With these numbers, operating cash flow is:

OCF = EBIT + Depreciation - Taxes = $560 + 100 - 196 = $464

Using the other OCF definitions, we have:

Bottom-up OCF = Net income + Depreciation = $364 + 100 = $464

Top-down OCF = Sales - Costs - Taxes = $1,650 - 990 - 196 = $464

Tax shield OCF = (Sales - Costs) X (1 - .35) + Depreciation X .35 = ($1,650 - 990) X .65 + 100 X .35 = $464

As expected, all of these definitions produce exactly the same answer. The $125,000 pretax saving amounts to (1 - .34) X $125,000 = $82,500 after taxes. The annual depreciation of $450,000/4 = $112,500 generates a tax shield of .34 X $112,500 = $38,250 each year. Putting these together, we calculate that the operating cash flow is $82,500 + 38,250 = $120,750. Because the book value is zero in four years, the aftertax salvage value is (1 - .34) X $250,000 = $165,000. There are no working capital consequences, so the cash flows are:

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