After Tax Analysis

To compute a rate of return which accounts for taxes, depreciation, escalation, and tax credits, a cash-flow analysis is usually required. This method analyzes all transactions including first and operating costs. To determine the after-tax rate of return a trial and error or computer analysis is required.

All money is converted to the present assuming an interest rate. The summation of all present dollars should equal zero when the correct interest rate is selected, as illustrated in Fig. 9-8.

This analysis can be made assuming a fuel escalation rate by using the gradient present worth interest of the present worth factor.

1

2

3

Single

After

Payment

(2 + 3) X 4

Tax

Present

Tax

Savings

Worth

Present

Year

Investment

Credit

(AS)

Factor

Worth

0

-P

- P

1

+TC

AS

SPPWi

2

AS

SPPW2

?2

3

AS

SPPW3

4

AS

SPPW4

Total SP

Trial and Error Solution: Correct i when £P - 0

Figure 9-8. Cash flow rate of return analysis.

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