386 INCOME TAXES
Return to the data of Example 12-6, where the used truck had a firstcost of $3000, a salvage value
after 5 years of $750, and savings of $800 per year. Use MACRS depreciation and calculate the
after-tax rate of return.Under MACRS, vehicles have a 5-year recovery period. Thus the MACRS depreciation can be cal-.
culated by using a VDB function (see "Spreadsheets and Depreciation" at the end of Chapter 11) or
by lookup in Table 11-3. The depreciation in Year 5 has been halved, since it is the year of disposal.FIGURE 12-3 Spreadsheet for after-taxJRR calculation.Note .from Figtire 12-3 that usingMACRS rather than straigl1Mine depreciation increases
the after-tax 1RR from 10.6% fo 11..24%. This is due sQ!ely to the faster wriJe-offthat is allowed
Ul1derMACRS.Summary
Since income taxes are part of most problems, no realistic economie-~ysis can ignore
their consequences. Income taxes make the U.S. government a partner in every business
venture. Thus the government benefits from all profitable ventures and shares in the losses
of unprofitableventures.--
A B C D E F G H
1 3000 First Cost(^2) 800 Annual Benefit
(^3) 5 Recovery Period
(^4) 750 Salvage Value
5 0.34 Tax Rate
6
Untaxed Taxed Recaptured Tax
7 Year BTCF BTCF IMACRS Depreciation Income Tax ATCF
(^80) -3000 -3000.0
(^91) t (^800) 600.0 200.0 -68.0 732.0
(^102800) 960.0 (160.0) 54.4 854.4.
(^113800) 576.0 224.0 -76.2 723.8
(^124) .. (^800) 345.6 454.4 I -154.5 645.5
(^135750800) 172.8 404.4 1031.6 .....,350.7 1199.3
(^14) Cum. Depr."'" 2654.4 i 7 7 IRR:::; 11.24%
(^157) / .-
(^16) / ""'.}'aJl:ed.BTCF - ;MACRS + Recapt.
(^17) =SaJvageI -Boo.kValUe