技术经济学英文版演示文稿C41

1、4. CASH FLOW ANALYSIS 4.1 Basic Tax Structure 4.2 Domestic Agreements 4.3 International Contracts 4.4 Summary14. 1 Basic Tax StructureIn this section, we discuss two important concepts which are common to most types of tax analysis. The only requirement is that the business invests in durable (lasti

2、ng more than one year) goods. For an exclusively service industry requiring no investment in durable goods, the concept of depreciation may not be relevant . Otherwise understanding of depreciation and income taxes is almost a universal requirement for a proper economic evaluation of any project.24.

3、1.1 DepreciationDepreciation in literal sense means a decrease in value. For example, you buy a car today, In economic analysis, depreciation has a different meaning. Realizing that the existence of a corporation is perpetual, depreciation is treated as a replacement cost. That is, if you buy a piec

4、e of equipment which has a useful life greater than one year, the assumption is that you will have to replace that piece of the equipment at the end of its useful life. Therefore, some money has to be set aside during the useful life so that the equipment can be replaced. This yearly replacement cos

5、t is called depreciation. 3In other words, it is an allocation(分配) of the cost of the equipment spread over its useful life. The government allows the corporation to set aside this money for future replacement by not taxing this money.Although use of depreciation for durable equipment is the most co

6、mmon, it is also used for other properties. To generalize, a property can be depreciated if it satisfies the following characteristics:* It must be used in business or production of income. .* It must have a life longer than one year.* It must be something that wears out(磨损), decays(腐烂), becomes obs

7、olete(陈旧) or loses value from natural causes.4These characteristics are most appropriate for (适于)equipment; however, they can also be applied to building, patents and copyrights.Investment in such property is called a capitalized cost. In production operations, this cost will include costs of casing

8、(下套管、固井), piping, tank batteries, pumps, compressors, buildings, etc. Considering that these costs are incurred over tangible items, sometimes, these costs are also called tangible costs. Costs related to patents and copyrights are intangible costs; however, they still need to be capitalized. In con

9、trast, the costs incurred for regular maintenance, upkeep and utilities for running the equipment, including the labor costs, are considered operating costs and can be deducted from the operating revenue in the same year for tax purposes.5Although the distinction between the capitalized costs and th

10、e operating costs is clear in most instances, in some instances the distinction is difficult to achieve. In the context of petroleum industry, a good example would be the costs of drilling a well. These costs include:* Costs related to agreements with drilling contractors.* Surveys(调查) related to lo

11、cation of a well.* Road costs and dirt(污垢) work related to well location.* Rig(钻机) transportation and set up costs.* Fuel, water, drilling mud costs.* Labor costs including supervisors(主管人), well site geologists(地质师) and testing of well.* Stimulation（激励） costs.* Cementing(水泥) costs (does not include

12、 casing).* Surface damage（赔偿） costs.6Since the drilling costs are incurred before the actual production begins, they cannot be considered operating costs. On the other hand, the costs for labor, utilities, drilling mud, and rig rental cannot be considered tangible costs. How to treat these costs is

13、indeed a legislative decision. Different countries have different rules with respect to categorizing the costs of drilling.Before we understand different methods for calculating the depreciation, we need to understand some basic definitions.7Cost Basis-B0Cost basis represents the cost of acquiring(获

14、得) a property. This is the total cost which will be capitalized over(从头到尾) the property. This cost includes the cost of the property as well as all the other incidental expenses(杂费) such as installation, freight(运费), and site preparation.8Book Value (Bk)Book value is cumulative depreciation subtract

15、ed from the cost basis of the property. In year k , the book value can be defined as, (4.1)where Dj is the depreciation in year j. The amount depreciated in each year will depend upon the method used.9Salvage ValueSalvage value is the price obtained from the sale of property at the end of its useful

16、 life.Repair CostsRepair costs are costs related to keeping the property in an ordinary efficient operating condition.10Capitalized CostsCapitalized costs related to the existing(现有的) property are costs related to alterations(改造), additions or improvements that increase propertys useful life or valu

17、e or make it adaptable(适应) for a different use.The distinction between repair costs and capitalized costs for an existing property is useful because repair costs can be deducted as operating costs, whereas, capitalized costs will have to be depreciated. This difference can have significant (重要的)tax

18、consequences as we will examine in the next section. 11Useful LifeThe time over which property is kept in productive use in a business.Tax Life The period of time over which depreciation is calculated to offset(抵消、冲销) taxable income. This period is usually shorter than the useful life of the propert

19、y. It is determined by the tax code of a particular country depending on the type of property. For example, in the United States the tax life can be as short as 3 years for taxies and race horses, and as long as 31.5 years for non-residential（住宅） real property.12Example 4.1 An oil company ordered a

20、new submersible pump for improving production from an old well. The cost of the pump is $20,000. The company will have to pay 7% sales tax on the pump. In addition, shipping costs are $300, and the installation costs are $l,000. What is the cost basis for the pump?SolutionIn calculating the cost bas

21、is, any cost associated with purchase, shipping, installation and site preparation will have to be included. Therefore, the cost basis for the pump is,Cost of Pump$20,000 Sales Tax (7%)1,400Shipping Cost(运费)300Installation cost1,000Cost Basis$22,700 13In calculating cost basis, it is critical that a

22、ll the costs including some non-monetary transactions(交易) are included. One such example of non-monetary transaction would be trade-in (打折)benefit. If you trade in (抵价购物)an oil pump for a new pump so that the cost of the new pump is $18,000, the cost will not be reduced by $2,000. Since the trade in

23、 value is considered to be $2,000, it will be added in the cost basis as a separate item. 14Straight Line DepreciationSLDStraight line depreciation is one of the easiest methods of estimating the depreciation. Mathematically, the depreciation is calculated as. (4.2)where Dk is the depreciation in ye

24、ar k , B0 is the cost basis, S is the salvage value at the end of tax life and n is the number of years of tax life.15Alternately, depreciation can also be calculated as, (4.3)where Bk-1 is the book value at the end of period k-l. Both equations would give the same result. The book value is calculat

25、ed using Eq. 4. l. A common term, S, in both Eq. 4.2 and Eq. 4.3 is difficult to estimate at the beginning of taxable life for many properties. Many tax codes simplify the calculations by assuming that the salvage value is zero at the end of tax life.16Example 4.2 Consider a piece of equipment purch

26、ased for $5,000. If the tax life is five years, and the salvage value is zero, calculate the depreciation schedule over the five year period. YearDepreciationBook Value at the Beginning of the Year11,0005,00021,0004,00031,0003,00041,0002,00051,0001,00017Declining Balance DepreciationDBD The amount o

27、f depreciation in each year is a certain percentage of the book value at the end of previous year.This percentage is constant throughout the tax life of the property. This percentage is usually defined as the ratio of declining balance rate to the tax life. For example, if declining balance rate is

28、200% and the tax life of a property is 5 years, then the percentage of the book value used as depreciation is 200%/5=40% per year. 18If we denote this percentage change in fraction as R , we can calculate the depreciation in year k as, (4.4)where the book value at the end of year k can be calculated

29、 as. (4.5) Substituting Eq. 4.5 in Eq. 4.4, we can calculate the depreciation in year k as, (4.6)where B0 is the cost basis.The declining balance rate can vary between 100% to 200% (double declining balance) ; the most common value being 200%.19Example 4.3 Using the same information as in Example 4.

30、2 and using the double declining balance method estimate the depreciation schedule.SolutionFor year one. depreciation is calculated as (using Eq. 4.6), D1 = RB0where R is 200%/5 = 40%, and B0 = $5,000.Substituting, D1=0.45,000=$2,000The book value at the end of year l can be calculated using Eq. 4.5

31、, B1=B0(1-R)1=5,000(1-0.4)=$3,000Similarly, for year two, D2=RB0(1-R)2-1=0.4*5,000(1-0.4)=$l,200Or, using Eq. 4.4, . D2=RBk-1=0.4(3,000)=$1,200The book value is, B2= (5,000)(1 - 0.4)2 = $l,800Calculations can be repeated for other years as well, as shown in the table below:20After five years, the to

32、tal amount of depreciation allowed is $4,61l which is not equal to the cost of the equipment. This is one of the major disadvantage declining balance method. That is, the cost of the equipment cannot be recovered fully over the tax life. Only at very large times can the total cost be fully recovered

33、. 21Sum of Years Digits DepreciationSYDDThis method also results in a larger depreciation at the beginning of a useful life than the straight line depreciation method. It is not a very common method used for depreciation. To calculate the depreciation using this method, we first need to know the sum

34、 of years digits. This sum represents the sum of all the years in a tax life. For example, if n is the tax life of a property, sum is calculated as, sum = l+2 +3+.+n (4.7)Alternately, we can also calculate the sum as, (4.8)22Depreciation in year k can be calculated as, (4.9) We can write Eq. 4.9 as,

35、 (4.10)Book value can be calculated using Eq. 4. 1.23Example 4.4 Using the same information as in Example 4.2, calculate the depreciation schedule using the sum of years digits depletion.SolutionUsing Eq. 4.10, depreciation in year 1 can be calculated as, For year two, The book value after year two

36、is. 24Similar calculations can be done for other years.Unlike declining balance method, sum of years digits method allows the depreciation of the entire cost of an asset.25Unit of Production DepreciationThis method of estimating the depreciation is based on the number of units produced by an equipme

37、nt rather than the life of the equipment. It is assumed that the total number of units that can be produced from the equipment is known. The amount of depreciation using this method can be calculated as, (4.1l)where (u) is the number of units produced in a given year, (U) is the total number of unit

38、s that can be produced from the unit, (C) is the cost of the equipment, and (S) is the salvage value.26Declining Balance and Straight line DepreciationTo remove the major disadvantage of the declining balance method, i.e., not being able to recover the entire cost of an asset; at the same time, to a

39、llow for the rapid depreciation as calculated by the declining balance method, a combination of declining balance and a straight line method is used. This method allows the calculation of depreciation using both the declining balance and the straight line methods and switching from one method to ano

40、ther when method predicts a higher depreciation than the other method.27Recall that straight line depreciation can be calculated as, (4.3)and the declining balance depreciation is calculated as, (4.4)For each year, we compute the depreciation using both methods and choose the value which is higher.

41、That is. if, (4.12), we select the declining balance methodif, (4.13), we select the straight line methodIf we assume that the salvage value is zero, we can simplify Eq. 4.13 to write,28Eq.4.14 provides a condition for switching to a straight line method. For example, if n= 5, and R = 0.4, k 3.5 to

42、switch to a straight line method. That is, we will switch in year 4 to a straight line method. The following example illustrates the technique.29Example 4.6 Using the same information as in Example 4.2, calculate the depreciation schedule using the combination (double declining and straight line) me

43、thod. Assume double declining balance (DDB).YearDepreciation(Declining balance)Depreciation(Straight Line)Book ValueAt The EndSelectedDepreciation12,0001,0003,0002,00021,2007501,8001,20037206001,08072044325405405405216540054030Declining Class Account DepreciationFor equipment which is assembled from

44、 various components, it is difficult to depreciate individual components separately. An example would be a pipeline network or a gas processing plant. It is difficult to keep track of a valve or a flange or a tee in a pipeline network; and depreciate it individually. To minimize this, accounting com

45、plexity another method commonly used for depreciation is the declining class account (DCA) depreciation.31This method is based on whole investment perpetual declining class account (DCA)schedule. The method is relatively easy to use. Assuming that the average tax life of the equipment is known, the

46、depreciable amount in a given year is calculated as, (4.15)where Bk-l is the book value at the end of previous year and Ak is the sum of capital expenditures during year k. Depreciation in year k is then calculated as, (4.16)where R is the declining balance ratio. This equation is continued to be us

47、ed so long as the equipment is used for a given purpose. If any part of the capital equipment is disposed（处理、处置）, the income received is treated as a taxable income.324.l .2 Income Taxes In general terms, tax is a way by which authorities share part of the income of an individual or a corporation. T

48、hese authorities may be federal government, individual states, local municipalities, counties and school districts. Taxing the income can take several forms; the most common being income tax which is levied on the difference between the gross revenue and allowed deductions for tax purposes. 33Other

49、types of taxes include property taxes which are based on the value of real estate: sales taxes which are based on the price of goods; luxury taxes which are based on items which are not considered necessities; entertainment (招待) taxes which are based on entertainment expenses; and value added taxes

50、which are based on the difference in a value of a good as it passes from one party to another. There may be other types which we have not included here.34In this section, we will concentrate on income taxes. Income taxes in most instances are levied by either federal or central government and the lo

51、cal or state government. The laws governing the calculations of income tax are extremely complex and replete with exceptions. Therefore, rather than considering the details of the tax laws in various countries, we will only concentrate on basic principles of tax laws which are common in most instanc

52、es.35The first principle about the income tax is that it is assessed based on the taxable income. Taxable income is the difference between the gross income or gross revenue and allowed deductions by the tax law. Logical tax deductions are the operating costs or other expenses associated with operati

53、ng a business. Other tax deductions typically included are depreciation, and interest payments.36The second principle common to most of the income tax laws is that the rates at which the tax applied tends to be progressive. That is, the tax rates are the smallest when the taxable income is the least

54、. As the taxable income increases, the tax rate also increases. For example, in the United States, the tax rate is 15% for a corporation with a taxable income less than $50,000; however, the rate increases to 39% for taxable income exceeding $200,000.37In most economic evaluations, one needs to use

55、marginal rate for calculations. Marginal tax rate represents the tax rate applied to the last dollar earned in the taxable income. For example, if the corporation has earned $30,000 last year and expects to add another $10,000 in taxable income with a new project, it is reasonable to assume a margin

56、al tax rate of 15%; however, if the corporation earned $l,000,000 last year and is considering a new project with a potential additional taxable income of $500,000, it is better to use 39% as a marginal tax rate in economic analysis. Because, that is the income tax rate that will be applied to any a

57、dditional taxable income. 38Tax ComputationsTaxable income is calculated by subtracting the allowable deductions from gross revenue. In mathematical terms, taxable income = gross revenue tax deduction (4.17)Most common deductions include operating costs, depreciation, overhead costs and other relate

58、d expenses. Therefore, we can write, taxable income = gross revenue - operating costs - related expenses - depreciation (4.18)39Once the taxable income is calculated, the income tax is calculated by using the applicable marginal tax rate. That is, income tax = taxable income tax rate （4.19）To calcul

59、ate net revenue, we need to subtract the actual expenses from the gross revenue. These expenses do not include depreciation or other deductions which are only deducted for tax purposes. Net revenue is calculated as, net revenue = gross revenue-operating costs - related expenses-tax (4.20)40If we use

60、 the following notation: Aj = gross revenue in year jOj = operating costs in year j Dj = depreciation in year j T = marginal tax rate Ej = other related expenses year jwe can write taxable income as, = Aj-Oj-Ej-Dj (4.21)we can write the income tax as, = T(Aj Oj -Ej -Dj) (4.22)and we can write the eq