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A company is considering the purchase of a capital asset for $100,000. Installation charges needed to make the asset for serviceable will total $30,000. The asset will be depreciated over six years using the straight-line method and an estimated salvage value (SV6) of $10,000. The asset will be kept in service for six years, after which it will be sold for $20,000. During its useful life, it is estimated that the asset will produce annual revenues of $30,000. Operating and maintenance (O&M) costs are estimated to be $6,000 in the first year. These O&M costs are projected to increase by $1,000 per year each year thereafter. The after-tax MARR is 12% and the effective tax rate is 40%.

Use the tabular format given in Figure 7-5 to compute the after-tax cash flows.

SECTION 7.9 GENERAL PROCEDURE FOR MAKING AFTER-TAx ECONOMIC ANALYS Before-Tax Cash Depreciation Flow (BTCF) Capital investment Ordinary income negative) in sign Deduction Cash Flow for Income Taxes After-Tax Cash d of Year Taxable Income (TI) Flow (ATCF) En Capital investment -t (TI) (positive in sign)| | or positive in sign | | '-fromTI) After-tax cash flows from operations Depreciation TI can be negative (opposite in sign is positive (Or (positive in sign) or positive in signrom TI) Market value (MV) MV BV MV Before-Tax IRR PW, and so on (Computed from Col. A, using the before-tax MARR) After-Tax IRR, PW, and so on (Computed from Col. E, using the after-tax MARR) BV - book value at end of year A Figure 7-5 General Fo qure 7-5 General Format (Worksheet) for After-Tax Analysis;, Determining the ATCF

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