The defender in a multiple-effect solar cell manufacturing plant has a market value of $130,000 and expected annual operating costs of $70,000 with no salvage value after its remaining life of 3 years. The depreciation charges for the next 3 years will be $69,960, $49,960, and $35,720. Using an effective tax rate of 35% and an after-tax MARR of 12% per year, determine the cash flow after taxes (CFAT) for year 2 only that can be used in a PW equation for comparing the defender against a challenger that also has a 3-year life.
What will be an ideal response?
TI, year 2 = -70,000 - 49,960 = -119,960
Taxes, year 2 = -119,960(0.35) = $-41,986 (tax savings)
CFAT, year 2 = -70,000 + 41,986
= $-28,014
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