As we noted earlier in the chapter, technology companies
haveusedanunusualploytogetthegoodwillcreatedwhena
premiumispaidoverbookvalueofftheirbooks.Usingthe
argument that the bulk of the market value paid for
technologycompaniescomesfromthevalueoftheresearch
donebythefirmovertime,theyhavewrittenoffwhatthey
called“in-processR&D” topreserveconsistency.After all,
theR&Dtheydointernallyisexpensed.Aswithamortization
ofgoodwill,writingoffin-process R&Dcreates anoncash
andnon-tax-deductiblechargeandweshouldlookatearnings
prior to the write-off.
Whenfirms divestassets,theycangenerateincome in the
formofcapitalgains.Infrequentdivestiturescanbetreatedas
one-timeitemsandignored,butsomefirmsdivestassetsona
regularbasis.Forsuchfirms,itisbesttoignoretheincome
associatedwiththedivestiture,buttoconsiderthecashflows
associatedwith divestiture,netofcapitalgainstaxes,when
estimatingnetcapitalexpenditures.Forinstance,afirmwith
$500 million in capital expenditures, $300 million in
depreciation, and $120 million in divestitures every year
would have a net capital expenditure of $80 million.
TAX EFFECT
Tocomputetheafter-taxoperatingincome,wemultiplythe
earningsbeforeinterestandtaxesbyan estimatedtaxrate.
Thissimpleprocedurecanbecomplicatedbythreeissuesthat
oftenariseinvaluation.Thefirstisthewidedifferenceswe
observe betweeneffective and marginaltaxratesfor these