Consolidated Rural Electric Coop (CREC) provides reliable electrical service to a large rural community. "Reading" the meters is very troublesome and costly due to the distance between service points, poorly kept narrow roads, locks on gates, distance to service inside property, dogs, and so on. They propose to place a meter conversion and maintenance facility whereby meters can be converted to permit remote access for information on usage, tampering, and need for maintenance. This area will also serve as their maintenance and calibration facility. The infrastructure is available, and only the equipment for the new area must be purchased at a cost of \(\$ 95,000\). The additional cost is expected to be \(\$ 20,000\) in the first year, increasing by a \(\$ 2,000\) gradient each subsequent year. The anticipated useful life and planning horizon is 7 years. Due to obsolescence, no salvage value is expected. The equipment is considered to be for the manufacture of electronic components and has a MACRS-GDS property class of 5 years. Financial accounting follows the straight-line method, with equal depreciation write-off over each of the 7 years. CREC borrows 45 percent of all capital, and the average rate is 9 percent, with this loan paid back in equal annual principal amounts plus interest over 7 years. The remainder is equity capital, and the Corporation Commission permits an earnings rate of 13 percent on it. The effective tax rate is 40 percent.

a. Determine the revenue requirement during each of the 7 years.

b. Determine the annual worth of the revenue requirements using the after-tax WACC as the appropriate discount factor (interest rate).

c. Using a gross income of \(\$ 50,000\) during each of the 7 years, develop the ATCF analysis and show that the revenue requirements method and the ATCF method are equivalent using the methods of Section 14.12 and Example 14.23.