Page 182 - Plant design and economics for chemical engineers

PLANT DESIGN AND ECONOMICS FOR CHEMICAL ENGINEERS

FIGURE 6-3
Break-even chart for chemical pro-
Rate of production, 1000 kg/month cessing plant.

Prior to 1951, the United States had strict governmental regulations
against rapid write-offs for industrial equipment. These restrictions increased
the income-tax load for new companies during their first few years of existence
and tended to discourage new enterprises. Therefore, during the Korean war, a
fast amortization policy for certain defense installations was authorized. This
policy permitted at least part of the value of the installation to be written off in
5 years as compared to an average of 10 to 15 years under the old laws. In 1954,
a new law was passed permitting approximately two-thirds of the total invest-
ment for any process to be written off as depreciation during the first half of the
useful life. A rapid write-off of this type can be very desirable for some concerns
because it may reduce income taxes during the early years of the plant life.
In 1971 and again in 1981 and 1986, there were major changes in Federal
income-tax regulations relative to acceptable methods for determining deprecia-
tion write-offs. Other changes have from time to time been adopted by Congress,
and the cost engineer must keep up-to-date on these changes.?
Governmental policies with reference to capital gains and gross-earnings
taxes should be understood when costs are determined. Suppose a concern
decides to sell some valuable equipment before its useful life is over. The
equipment has a certain asset or unamortized value, but the offered price may

tFor a discussion of depreciation write-off methods, see Chap. 9 (Depreciation).