CEPM Chapter 2-Economics & Tax

CEPM Chapter 2-Economics & Tax - 11/27/2008 The...

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11/27/2008 1 Instructor: Dustin Olson, MBA The money a construction company spends for equipment is an investment which must be recovered as the machines are utilized on projects. Ownership costs accrue whether or not the equipment is used. Ci t l t ( h i Capital cost (purchase price) Salvage value Depreciation tax shield Overhead expenses Profit Total revenue Total Cost Break-even point Variable Cost Total Revenue or Total Cost Loss Unit Volume BEV Fixed costs Total Revenue = Total Cost Price x BEV = Fixed cost + Unit variable cost (BEV) BEV = Fixed cost Price – Unit variable cost BEV = Fixed cost Unit contribution • Sensitivity analysis •Market size
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11/27/2008 2 Under the tax system of the US, an owner can reduce the company’s tax burden and thereby lessen net machine cost by depreciating a machine’s loss in value with age. ) Depreciation is used to recover capital expenses for most tangible business assets.
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CEPM Chapter 2-Economics & Tax - 11/27/2008 The...

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