Page 286 - Analysis, Synthesis and Design of Chemical Processes, Third Edition

9.8 Taxation, Cash Flow, and Profit

Taxation has a direct impact on the profits realized from building and operating a plant. Tax regulations
are complex, and companies have tax accountants and attorneys to ensure compliance and to maximize the
benefit from these laws. When we are considering individual projects or comparing similar projects, we

must account for the effect of taxes. Taxation rates for companies and the laws governing taxation change
frequently. The current tax rate schedule (as of May 2001) is given in Table 9.3.

Table 9.3 Federal Tax Rate Schedule for Corporations [2]

For most large corporations, the basic federal taxation rate is 35%. In addition, corporations must also
pay state, city, and other local taxes. The overall taxation rate is often in the range of 40% to 50%. The
taxation rate used in the problems at the back of this chapter will vary and may be as low as 30%. For the
economic analysis of a proposed (current) process, clearly it is important to use the correct taxation rate,

which will, in turn, depend on the location of the proposed process.

Table 9.4 provides the definition of important terms and equations used to evaluate the cash flow and the
profits produced from a project.

*
*
Table 9.4 Evaluation of Cash Flows and Profits in Terms of Revenue (R), Cost of Manufacturing
(COM), Depreciation (d), and Tax Rate (t)