Why do we have different tax treatment for upfront project cost and cash flows? Cash flows are after tax but upfront project cost is not. Does anyone know why do we do that?
Hmm…which part does this question come from? I can hardly recall reading stuff like this…
maxmeomeo Wrote: ------------------------------------------------------- > Hmm…which part does this question come from? I > can hardly recall reading stuff like this… This is capital budgeting dude…corp finance but they have used NPV almost everywhere starting from quant to PM
No I am asking about mixed tax treatment, not capital budgeting or NPV
Mixed tax treatment when I say I mean no taxes for upfront project cost and tax for cash flows why?
I dont really get your point. In order to calculate the cashflow, you need to take into account the project cost. In that sense, the project cost is somehow “included” in the cashflow and this CF is taxed. That implies your project cost is already taken into consideration for tax treatment. Right?
maxmeomeo Wrote: ------------------------------------------------------- > I dont really get your point. > > In order to calculate the cashflow, you need to > take into account the project cost. > In that sense, the project cost is somehow > “included” in the cashflow and this CF is taxed. > That implies your project cost is already taken > into consideration for tax treatment. Right? When you say “this CF is taxed”, how is that taxed. I know other future cash flows are not.
Well here is the process: You have EBIT ( or marginal earnings if you implement the process) NOPLAT = EBIT ( 1-tax rate) Free cashflow = NOPLAT - change in invested capital This implies that Free cashflow is after tax. Not before tax.