Molton Inc. made a $60,000 cash expenditure this year (year 0). Compute the after-tax cost if Molton must capitalize the expenditure and amortize it ratably over three years, beginning in year 0. Molton has a 35% marginal tax rate and uses a 7% discount rate.

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The after-tax cost is calculated by considering the tax savings from the amortization deductions. The deduction each year is $20,000 ($60,000/3). The tax savings each year is $20,000 * 35% = $7,000. The present value of these tax savings is calculated using the 7% discount rate. The present value of $7,000 in year 0 is $7,000, in year 1 is $7,000 / 1.07, and in year 2 is $7,000 / (1.07^2). Subtracting these present values from the initial expenditure gives the after-tax cost.