AFTERTAX ECONOMIC ANALYSIS

1
CHAPTER XV

• AFTER-TAX ECONOMIC ANALYSIS

2
AFTER TAX ECONOMIC ANALYSIS

• Consideration of taxes in performing economic
  analysis is accomplished as follows
• Step 1 - Compute Net Cash Flow, NCF, for each
  year.
• Step 2 - Use NCF as input into PW, EAC, or ROR
  analysis.

3
AFTER TAX ECONOMIC ANALYSIS

• Finding NCF for Equity Financed Assets
• FINDING CFAT
• CFBT Gross Income - Expenses
• Taxable Income, TI CFBT - Depreciation Cap.
  Gains
• Recaptured Dep. - Cap. Loss
• Taxes (TI) T
• CFAT CFBT - Taxes
• NCF CFAT - Equity Financed Capital Expense
• NCFCFAT - CE SV

4
AFTER TAX ECONOMIC ANALYSIS

• NCF for debt financing
• TI CFBT - D Cap Gain - Cap Loss Recap. Dep.
• - Interest on Debt
• Tax (TI)T
• CFAT CFBT - Tax - interest payments
• NCFCFAT DFCR- DFCD
• DFCR Debt Financed Cap. Receipts Loan
  Principle or Bond Sale
• DFCD Debt Financed Cap. Disp. Loan Principle
  or Bond Face Value

5
AFTER TAX ECONOMIC ANALYSIS

• If TI is negative in any year it is usually
  assumed that the negative tax offsets taxes
  generated in other parts of the company during
  the same tax year. Hence, any negative tax
  increases CFAT during the same taxable year.