46. A Boeing contractor responsible for producing a portion of the landing gear for huge airliners experienced a storm-related 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 fi rst cost is $480,000 installed. A total of $275,000 is borrowed at a rate of 12% per year and no principal is repaid in the fi rst year. Deductible annual costs are $Y, and depreciation is MACRS-GDS in the 7-year property class, or 14.29% in the fi rst year. The taxable income is $15,000.

a. What is the value of the “deductions” or $Y in the fi rst year?

b. What is the income tax paid in the fi rst year assuming a marginal tax rate of 40%?

c. What is the after-tax cash fl ow for the fi rst year?

Note: Problems 47–55 use one or more of the following loan plans:

■ Plan 1—pay the accumulated interest at the end of each interest period and pay the principal at the end of the loan period.

■ Plan 2—make equal principal payments, plus interest on the unpaid balance at the end of the period.

■ Plan 3—make equal principal-plus-interest end-of-period payments.

■ Plan 4—make a single payment of principal and interest at the end of the loan period.