A Boeing contractor responsible for producing a portion of the landing gear for huge airliners experienced a stormrelated power glitch during the multi-axis milling, to tolerances less than 0.001 inch, of a large and complex part.

The value already in the part, plus the equipment damage, was \($300,000.\) Risk analysis indicates that a similar event might occur once per year on average if nothing is done. PolyPhaser, a leader in lightning and surge protection, was commissioned to do a turnkey installation to protect this critical portion of the process. The first cost is \($480,000\) installed. A total of \($275,000\) is borrowed at a rate of 12 percent per year, and no principal is repaid in the first year.

Deductible annual costs are \($Y,\) and depreciation is MACRS-GDS in the 7-year property class, or 14.29 percent, in the first year. The taxable income is \($15,000.

a. What is the value of the deductions, or \($Y,\) in the first year?

b. What is the income tax paid in the first year, assuming a marginal tax rate of 40 percent?

c. What is the after-tax cash flow for the first year?