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%.

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

B) Compute the after-tax present worth of the project and use a uniform gradient in your formulation.

C) The before-tax present worth of this asset is -$50,070. By how much would the annual revenues have to increase to make the purchase of this asset justifiable on a before-tax basis?

SECTION 7.9 , GENERAL PROCEDURE FOR MAKNG AFTER-TAX ECONOMC ANALYS ((4) (B) Taxable Income (TI) Before-Tax Cash Depreciation oof Year, k Flow (BTCF Deduction Cash Flow for Income Taxes After-Tax Cash Flow (ATCF) Capital investment Capital investenent Ordinary incomeDepreciation can is positive (or (positive in sign)| | or positive in sign! from TI) II can be negative (opposite in sign(as frm (TI) After-tax cash operalions Market value (MV) After-Tax IRR, Before-Tax IRR, PW, and so on (Computed from Col. A, using the before-tax MARR) PW. and so on (Computed from Col. E, using the after-tax MARR) BV book value at end of year N ure7 eral Format (Worksheet) for After-Tax Analysis, Determining the ATOF