Question

Calculate the CFAT for year 2 of the defender The defender in a multiple-effect solar cell manufacturing plant has a market value of $130,000 and expected annual operating costs of $65,000 with no salvage value after its remaining life of 3 years. The depreciation charges for the next 3 years will be $68,320, $49,960, and $35,120. Using an effective tax rate of 36% and an after-tax minimum acceptable rate of return (MARR) of 7% per year, determine the cash flow after taxes (CFAT) for year 2 only that can be used in a present worth (PW) equation for comparing the defender against a challenger that also has a 3-year life. The CFAT for year 2 is determined to be $

Answer 1

The Cash Flow After Taxes (CFAT) for year 2 of the defender is $9,625.60.

Step-by-step explanation:

To calculate the Cash Flow After Taxes (CFAT) for year 2 of the defender, we need to consider the market value, operating costs, depreciation charges, effective tax rate, and after-tax minimum acceptable rate of return (MARR).

The CFAT for a particular year is calculated by subtracting the annual operating costs and the depreciation charges for that year from the market value. Then, the CFAT is adjusted for taxes by multiplying it by (1 - tax rate).

For year 2 of the defender:
Market value = $130,000
Operating costs = $65,000
Depreciation charges = $49,960
Effective tax rate = 36%
MARR = 7%

CFAT = (Market value - Operating costs - Depreciation charges) × (1 - Tax rate)
CFAT = ($130,000 - $65,000 - $49,960) × (1 - 0.36)
CFAT = $15,040 × 0.64
CFAT = $9,625.60

Therefore, the CFAT for year 2 of the defender is $9,625.60.