608 CHAPTER 17 After-Tax Economic Analysis CFBT and CFAT 17.10 What is the basic difference between cash flow after taxes (CFAT) and net profit after xes (NPAT) 4 years. For this tabulation only, neglect any taxes that may be incurred on the sale of the asset. Year of ownership Gross income, S Expenses. 1 2 3 80.000 150.000 120.000 100.000 - 20.000-40,0001 - 30.000 - 50.000 17.11 Derive a general relation for calculating CFAT under the situation that there is no annual depreciation to deduct and it is a year in whicho investment Por salvage S occurs. 17.12 Where is deprecation considered in the CFBT and CFAT expressions used to an- alyze an engineering economy altema- live cash flow e imate? 17.15 A petroleum engineer with Halstrom Ex- ploration must estimate the minimum re- quired cash flow before taxes if the CFAT is $2.000.000. The effective federal tax rate is 35%, and the state tax rate is 4.5% A total oki million in lat-deductible de preciation will be charged this year. Esti make the required CPBT, 17.16 17.13 Four years ago ABB purchased an asset for $300,000/ with an estimate salvage of $60,000. Depreciation was $60,000 per year. The following annual gross in- comes and expenses were recorded. The asset was sold for $60.000 after 4 years. (a) Tubilate the cash flows by hand after an effective 32% tax rate is ap- plied. Use the format or Table 17-3. (b) Continue the ishte above and calcu- late the nel income (Nl) estimates. Setup the spreadstieet and determine the annual CFAT and NI values. Additionally. plot these values versus year of ownership. A division of Hanes has the follipwing data at the end of a year. Total revenue = $18 million Depreciation + $8.2 million Operating expenses $28 million For an effective federal tax rate of 35% and state tax rate of 6.5%, determine (a) CFAT, (h) perdentage of total revenue expended on taxes, and (c) net income for the year. Year of ownership Gross income, s Expenses, 1 2 3 4 30.000 150.000 120.000 100.000 - 20,0001-40.000-30.0001 - 50.000 17.14 Four years ago Hartcourt-Banks pur- chased an asset for $200,000 with an estimated S = $40.000. MACRS depre- ciation was charged over a 3-year recov- ery period. The following gross incomes and expenses were recorded, and an ef- fective tax rate of 40% was applied. Tab- ulate CFAT under the assumption that the asset was (a) discarded for SO after 4 years and (b) sold for $20,000 after 17.17 Wal-Mart Distribution Centers has put into service forklifts and conveyors pur- chased for $250.000. Use a spreadsheet to tabulate the CFBT CFAT, and NPAT for 6 years of ownership. using an effec- tive tax rate of 40% and the estimated cash flow and depreciation amounts shown. Salvage is expected to be zero. Gross Operating MACRS Year Income, S Expenses, S Depreciation, S 90.000 -30.000 sco 100000 - 30,000 SOC 60.000 22000 48.000 60.000 -24,000 28.800 60.000 -26.000 28.800 40.000 - 28,000 14.400
