Ch12 - Engineering Economic Analysis - Ninth Edition

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Engineering Economic Analysis - Ninth Edition Newnan/Lavelle/Eschenbach Copyright 2004 by Oxford University Press, Inc. 1 Engineering Economic Analysis 9th Edition Chapter 12 INCOME TAXES Engineering Economic Analysis - Ninth Edition Newnan/Lavelle/Eschenbach Copyright 2004 by Oxford University Press, Inc. 2 Income Taxes • Taxes have an effect on cash flow and affect the investment decisions managers make. • Integrating tax considerations into economic analysis requires a thorough understanding of two issues. • How the taxes are imposed. • How taxes affect the economic analysis techniques. Engineering Economic Analysis - Ninth Edition Newnan/Lavelle/Eschenbach Copyright 2004 by Oxford University Press, Inc. 3 • Type of tax • Income tax based on earnings • Property tax based on property value • Sales tax based on purchase price • Use tax based on type of use of an item • Collected by • Federal • State • County • City A Partner(s) in the Business For simplicity, the text focuses on either Federal income taxes or bundles the tax into a rate that reflects all taxing entities. This is done as the taxes at the state or local level vary widely. Engineering Economic Analysis - Ninth Edition Newnan/Lavelle/Eschenbach Copyright 2004 by Oxford University Press, Inc. 4 Calculation of After-tax Figure of Merit General Process • Understand the tax laws affecting the project of interest. • Estimate the cash flows without considering the effect of taxes. • Adjust the cash flow based on the effects of depreciation and income taxes. • Determine the after-tax measure of merit (PW, IRR, payback, etc.). Engineering Economic Analysis - Ninth Edition Newnan/Lavelle/Eschenbach Copyright 2004 by Oxford University Press, Inc. 5 Calculation of Taxable Income • Tax laws can be very complex, which can lead to very complex calculations. • A tax is just another disbursement for services rendered. Engineering Economic Analysis - Ninth Edition Newnan/Lavelle/Eschenbach Copyright 2004 by Oxford University Press, Inc. 6 Classification of Business Expenditures • Capital expenses • Expenditures for depreciable assets • Generally those items having a life in excess of one year • Expenditures for non-depreciable assets...
View Full Document

This note was uploaded on 04/07/2008 for the course IMSE 530 taught by Professor Chang during the Fall '07 term at Kansas State University.

Page1 / 15

Ch12 - Engineering Economic Analysis - Ninth Edition

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online