After-Tax Analysis


Tax-deductible expenses reduce income subject to taxes. For the after-tax life-cycle cost analysis and payback analysis, the actual incurred annual savings is given as follows:

AS = (1-I)E+ID
where:

AS=
E =

D =
I =
yearly annual after-tax savings (excluding effect of tax credit)
yearly annual energy savings (difference between original expenses
and expenses after modification)
annual depreciation rate
income tax bracket

Comparing Alternate Investment

To convert the lump sum investment P into the annual cost. In the case where the asset has a value after the end of its useful life, the annual cost becomes:

AC = (P-L)CR + iL
where:

AC=
L=
annual cost; CR = capital recovery; i = interest
salvage value (the net sum of money that can be realized for a piece
of equipment, over and above its removal cost, when it is retired at
the end of the service life)


-21-