Initial Cost (includes installation): $5,000 Useful Life: 6 years Residual value: $300 Annual rent for space: $3,200
Question:
Initial Cost (includes installation): $5,000
Useful Life: 6 years
Residual value: $300
Annual rent for space: $3,200
Annual repairs and maintenance: $600
Annual revenue: $4,100. This rate will increase 2.6% per year
Annual electricity cost: $1,200. This rate will increase 3% per year
A $1,000 overhaul/upgrade is expected at the at the end of year 3. This cost is depreciated over the remaining 3 years.
Charging companies have a pretax cost of capital of 10% due to their high risk.
After 6 years the charging equipment can be sold for its residual value.
The tax rate is currently 35% and straight-line depreciation can be used for tax purposes.
1. Calculate the NPV/payback and annualized ROI* of an average EV charging station under the current conditions. What is the PV of the income taxes/payments collected/paid by the government for the 300,000 planned charging stations? The government's cost of capital is 5%...governments don't pay taxes. Assume that the charging companies have other income, so they are eligible for tax credits (refunds/reductions). For example, at the 40% tax rate, an annual loss of $50,000 will generate an offsetting $4,000 cash inflow due to the reduction of taxes (net cash flow -$6,000)
*Divide the total cash flows by the initial $6,000 investment and convert to annualized rate
2. Analyze the following INDEPENDENT policy ideas to encourage investment in EV charging stations. Show the incremental effect on NPV of an average charging station and the effect on total income taxes/payments collected/paid collected by the government
a. Reducing the corporate tax rate on new charging station profits to 30%
b. Charging no income taxes on new charging stations for the first 3 years
c. Allowing charging station companies to fully depreciate their initial investment in the first year for tax purposes.
d. Providing free rent for charging stations at federal buildings.
e. Federally guarantee loans to charging station companies thereby lowing their pre-tax cost of debt to 2%
Financial Accounting and Reporting a Global Perspective
ISBN: 978-1408076866
4th edition
Authors: Michel Lebas, Herve Stolowy, Yuan Ding