Engineering Economic Analysis

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After Completing This Chapter...

The student should be able to:

.Calculatetaxes dueortaxes owedfor both individuals and corporations.

.Understand the incremental nature of the individual and corporate tax rates used for

calculating taxes on income.

.Calculate a combined income tax rate for state and federal income taxes and select an

appropriate tax rate for engineering economic analyses.

.Utilize anafter-tax tax tableto find the after-tax cash flowsfor a prospective investment

project.

.Calculate after-tax measures of merit, such as present worth, annual worth, payback

period, internalrate of return, and benefit-cost ratio, from developedafter-tax cash flows.

.Evaluate investment alternativeson an after-tax basis including asset disposal.

.Use spreadsheets for solving after-tax economic analysis problems.

QUESTIONS TO CONSIDER ;;.

1. The wind energy production tax credit has become controversial among some com-
   mentators, who see it as "corporate welfare." These critics contend that the govern-
   ment should not be in the business of encouraging wind energy-or any other type of
   energy source, for that matter. Instead, they argue, the market should determine whether
   alternative energy sources such as wind power succeed or fail. Are these critics right?


2. Proponents of the wind production tax credit counter that the energy market has never
   been genuinely "free." They point out that other types of energy production (notably
   coal and oil) have obtained large government subsidies over the years in the form of
   depletion allowances and other tax provisions. In fact, these proponents argue, carbon-
   based sources enjoy a tremendous "hidden subsidy" because the environmental and
   health effects of these more-polluting energy sources are not paid for by coal and oil
   producers, but are borne by society at large. Are these proponents right?


3. Developing a wind power project takes many years and requires the commitment of
   large sums of investmentcapital before the project begins to return a profit. What is the
   effect on investment when the wind power production tax credit is allowed to expire, or
   is extended for periods of only a few years?


4. The federal income tax was introduced in the United States in 1913.Using the Internet,
   can you determine how tax rates changed throughoutthe course of the twentieth century?
   How has this affected the value of tax credits to industry?