tailieunhanh - Lecture Managerial accounting (15/e): Chapter 13C - Garrison, Noreen, Brewer

Chapter 13C - Income taxes in capital budgeting decisions. We ignored income taxes in this chapter for two reasons. First, many organizations do not pay income taxes. Not-for-profit organizations, such as hospitals and charitable foundations, and governmental agencies are exempt from income taxes. Second, capital budgeting is complex and is best absorbed in small doses. Now that we have a solid foundation in the concepts of present value and discounting, we can explore the effects of income taxes on capital budgeting decisions. | Income Taxes in Capital Budgeting Decisions Appendix 13C Simplifying Assumptions Simplifying Assumptions Key Concepts To calculate the amount of income tax expense associated with a capital budgeting project, we’ll be using a two-step process: Key Concepts A capital budgeting project’s incremental net income computations include: Annual revenues. Annual cash operating expenses. Annual depreciation expense. One-time expenses related to repairs and maintenance. Key Concepts A capital budgeting project’s incremental net income computations exclude: Immediate investments in equipment, other assets, and installation costs. Investments in working capital. The release of working capital. The proceeds from selling a noncurrent asset when no gain or loss is realized on the sale. Holland Company – An Example Holland Company owns the mineral rights to land that has a deposit of ore. The company is deciding whether to purchase equipment and open a mine on the property. The mine would be depleted and closed in 5 years and the equipment would be sold for its salvage value. More information is provided on the next slide. Holland Company – An Example Should Holland open a mine on the property? Holland Company – An Example Holland Company – An Example Holland Company – An Example The net present value computations include the following: Holland Company – An Example Each year’s total cash flows are multiplied by the appropriate discount factor for 12% to compute their lesser present value. Holland Company – An Example The present values in cells B22 through G22 are combined to determine the project’s net present value of $231. The positive net present value indicates that Holland Company should proceed with the mining project. End of Appendix 13C | Income Taxes in Capital Budgeting Decisions Appendix 13C Simplifying Assumptions Simplifying Assumptions Key Concepts To calculate the amount of income tax expense associated with a capital budgeting project, we’ll be using a two-step process: Key Concepts A capital budgeting project’s incremental net income computations include: Annual revenues. Annual cash operating expenses. Annual depreciation expense. One-time expenses related to repairs and maintenance. Key Concepts A capital budgeting project’s incremental net income computations exclude: Immediate investments in equipment, other assets, and installation costs. Investments in working capital. The release of working capital. The proceeds from selling a noncurrent asset when no gain or loss is realized on the sale. Holland Company – An Example Holland Company owns the mineral rights to land that has a deposit of ore. The company is deciding whether to purchase equipment and open a mine on the property. The mine would be depleted

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• Managerial accounting
• Lecture Managerial accounting
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• Holland company
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