To calculate the operating cash flow (OCF) for year 4, we'll follow these steps:

1. Calculate Depreciation Expense:
   The equipment is depreciated from an initial value of $695,000 to $107,000 over 7 years using straight-line depreciation.
   $\text{Depreciation per year} = \frac{\text{Initial Cost} - \text{Salvage Value}}{\text{Depreciation Period}}$ $= \frac{695,000 - 107,000}{7} = 84,000$

2. Calculate Earnings Before Interest and Taxes (EBIT) for Year 4:

   • Revenue for Year 4: $336,000
   • Variable Costs for Year 4: $249,000
   • Depreciation Expense: $84,000

   $\text{EBIT} = \text{Revenue} - \text{Variable Costs} - \text{Depreciation}$ $= 336,000 - 249,000 - 84,000 = 3,000$

3. Calculate Taxes:
   The tax rate is 40%, so: $\text{Taxes} = \text{EBIT} \times \text{Tax Rate} = 3,000 \times 0.40 = 1,200$

4. Calculate Net Income:
   $\text{Net Income} = \text{EBIT} - \text{Taxes} = 3,000 - 1,200 = 1,800$

5. Calculate Operating Cash Flow (OCF) for Year 4:
   OCF is given by: $\text{OCF} = \text{Net Income} + \text{Depreciation}$ $= 1,800 + 84,000 = 85,800$

Thus, the operating cash flow for year 4 that Pink Industrial should use in its NPV analysis is $85,800.

Would you like more details or have questions on any part of this solution?

Here are some further questions you might consider:

1. How would changing the depreciation method impact the OCF calculation?
2. What would be the effect of a different tax rate on the operating cash flow?
3. How would the OCF change if the project’s revenue or variable costs differed?
4. How does straight-line depreciation differ from other depreciation methods?
5. What role does the fixed cost play in this NPV analysis?

Tip: Always separate variable and fixed costs in project evaluations to clarify their impact on net income and cash flow.