A utility is preparing documentation for the Corporation Commission regarding revenue requirements during the next year. The
Question:
A utility is preparing documentation for the Corporation Commission regarding revenue requirements during the next year. The company is 30 percent debt financed at an average interest rate of 6 percent, and the unrecovered investment is \(\$ 40,000,000\). The yearly expenses are \(\$ 2,500,000\) and the depreciation is \(\$ 3,800,000\). Fixed charges are \(\$ 8,800,000\). Both book and tax depreciation follow the same MACRS schedule, and the tax rate is 40 percent.
a. What is the taxable income?
b. What is the income tax paid?
c. What are the equity earnings (return to owners)?
d. How much money is equity financed?
e. What is the percentage return on equity to owners?
f. What is the revenue requirement for the year?
g. If revenue received exactly matches the revenue requirements, determine the after-tax cash flow for the year if none of the debt principle is paid off during the year.
Step by Step Answer:
Principles Of Engineering Economic Analysis
ISBN: 9781118163832
6th Edition
Authors: John A. White, Kenneth E. Case, David B. Pratt