Engineering Economic Analysis

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After-Tax Replacement Analysis 421

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The after-tax marginal cost of ownershipwill involvethe followingelements: forgone gain or los§,

forgone interest, annual loss in after-tax value, and annual operatinglmaintenanceanctinsurance.

We calculate the marginal cost of each of these in Table 13.;.1.

TABLE13-1 Marginal Costs of Ownership

Forgone Capital Gains/Losses

Lost After-Tax Value

Year,n

After-TaxValue at

Beginning Yearn

Loss in After-Tax

Value in Year n

After~Tax Value at

End Year n

1

2

3

4

5

$25?000

18,560

13,560

9,280

!!I~'^5720 _':---11;;= ==::=;

2,880

2,160

18,'000 + 560= $18,560

'13;000+ 560== 13,560

9,OOQ+ 280..:... 9,28Q

6,000.,.- 280== 5,72,0

=:=:4.0Qil""i112~ =2~~~ _ =:= 1m~

3,000- 840= 2,160

2.5Qp-" 700;:::: 1,800

$6440

5000

4280

3560

!!::284Q ='

720

360

= ----.-

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Gainor Loss Forgone MarginalCostin

Market Value Book Value If Asset Sold Gain or Loss Yearn Due to

Year,n in Yearn in Yearn in Yearn If Decideto Keepin Yearn Forgone Gain/Los

(^1) $18,000 $20,000 -$2000 $ 0 0
(^2) 13,000 15,000 -2000 -2000( -0.28)..:... 560 560
(^3) 9,000 10,000 -1000 - 2000(-0.28) = 560 560
(^4) 6,000 5,000 (^1000) -1000(-0.28) = (^280280)
(^5) 4,000 (^04000) 1000(-0.28) = -280 -280
(^6) 3,000 (^03000) 40oo(-"0.28)==-1120 -1120
(^7) 2,500 (^02500) 30oo(-0.28) = -840 -840
Forgone Interest Marginal O&M, Insurance Costs
Market Value Forgone Total O&M Marginal Cost
Beginning of After-Tax Interest and Insurance in Year n Due to
Year,n Year n in Year n Cost in Year n O&M and Insurance
(^1) $25,000 $25,000(0.10)(0.60) = $1500 "$7,000 7,000(0.60) = $4200
(^2) 18,000 18,000(0.10)(0.60)= 1080 7,500 7,500(0.60):- 4500
3 II 13,000 13,000(0.lQ)(0.60) = (^780) 8,000 8,000(0.60)= 4800
(^4) 9,000 9,000(0.10)(0.60) = (^540) 10,000 10,000(0.60) = 6000
(^5) 6,000 6,000(0.10)(0.60) - (^360) 12,000 12,000(0.60).. 7200
(^6) 4,000 4,000(0.1O)(0.6(})= (^240) 14,000 14,000(0.60) = 8400
.7 3,000 3,000(0.10)(0.60) == (^180) 16,000 16,000(0.60) - 9600