Cost Estimating for Engineers Taxes & Cash Flow

Taxable Income + Gross Income - Depreciation Allowance - Interest on Borrowed Money - Other Tax Exemptions = Taxable Income

Corporate Tax Rate

Corporate Tax Ex: Suppose K-Corp earns $5,000,000 in revenue above manufacturing and operations cost. Suppose further that depreciation costs total $800,000 and interest paid on short and long term debt totals $1,500,000. Compute the tax paid.

Corporate Tax Gross Income$ 5,000,000 Depreciation- 800,000 Interest - 1,500,000 Taxable Income$ 2,700,000

Corporate Tax Gross Income$ 5,000,000 Depreciation- 800,000 Interest - 1,500,000 Taxable Income$ 2,700,000 Tax= $ 113, (2,700, ,000) = $ 941,650

After Tax Cash Flow + Gross Income - Interest = Before Tax Cash Flow

After Tax Cash Flow + Gross Income - Interest = Before Tax Cash Flow - Tax = After Tax Cash Flow

After Tax Cash Flow Ex: Suppose K-Corp earns $5,000,000 in revenue above manufacturing and operations cost. Suppose further that depreciation costs total $800,000 and interest paid on short and long term debt totals $1,500,000. Compute the after tax cash flow.

After Tax Cash Flow Gross Income $ 5,000,000 Depreciation- 800,000 Interest - 1,500,000 Before Tax Cash Flow $ 2,700,000

After Tax Cash Flow Gross Income $ 5,000,000 Interest - 1,500,000 Before Tax Cash Flow $3,500,000 Less Tax 941,650 After Tax Cash Flow $ 2,558,350

After Tax Cash Flow Gross Income $ 5,000,000 Interest - 1,500,000 Before Tax Cash Flow $3,500,000 Less Tax 941,650 After Tax Cash Flow $ 2,558,350

After Tax Cash Flow Formulas BTCF = Before Tax Cash Flow = Revenues - Expenses

After Tax Cash Flow Formulas BTCF = Before Tax Cash Flow = Revenues - Expenses TI = Taxable Income = Cash Flow - Interest - Depreciation

After Tax Cash Flow Formulas BTCF = Before Tax Cash Flow = Revenues - Expenses TI = Taxable Income = Cash Flow - Interest - Depreciation Tax = TI * Tax Rate

After Tax Cash Flow Formulas BTCF = Before Tax Cash Flow = Revenues - Expenses TI = Taxable Income = Cash Flow - Interest - Depreciation Tax = TI * Tax Rate ATCF = After Tax Cash Flow = BTCF - Tax

Ex: After Tax Cash Flow

Borrowed Money

Class Problem A company plans to invest in a water purification system (5 year property) requiring $800,000 capital. The system will last 7 years with a salvage of $100,000. The before-tax cash flow for each of years 1 to 6 is $200,000. Regular MACRS depreciation is used; the applicable tax rate is 34%. Construct a table showing each of the following for each of the 7 years.

Solution