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Cost Estimating for Engineers

This guide provides a comprehensive overview of key concepts in corporate taxation and cash flow analysis for engineers. It covers taxable income calculations, gross income, depreciation allowances, and interest on borrowed money, along with practical examples, such as K-Corp's revenue and expenses. By utilizing key formulas such as Before Tax Cash Flow (BTCF) and After Tax Cash Flow (ATCF), engineers can accurately compute tax obligations and cash flows from investments, like a water purification system, ensuring effective financial planning and decision-making.

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Cost Estimating for Engineers

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  1. Cost Estimating for Engineers Taxes & Cash Flow

  2. Taxable Income + Gross Income - Depreciation Allowance - Interest on Borrowed Money - Other Tax Exemptions = Taxable Income

  3. Corporate Tax Rate

  4. Corporate Tax Ex: Suppose K-Corp earns $5,000,000 in revenue above manufacturing and operations cost. Suppose further that depreciation costs total $800,000 and interest paid on short and long term debt totals $1,500,000. Compute the tax paid.

  5. After Tax Cash Flow + Gross Income - Interest = Before Tax Cash Flow - Tax = After Tax Cash Flow

  6. After Tax Cash Flow Ex: Suppose K-Corp earns $5,000,000 in revenue above manufacturing and operations cost. Suppose further that depreciation costs total $800,000 and interest paid on short and long term debt totals $1,500,000. Compute the after tax cash flow.

  7. After Tax Cash Flow Gross Income $ 5,000,000 Depreciation - 800,000 Interest - 1,500,000 Before Tax Cash Flow $ 2,700,000

  8. After Tax Cash Flow Formulas BTCF = Before Tax Cash Flow = Revenues - Expenses TI = Taxable Income = Cash Flow - Interest - Depreciation Tax = TI * Tax Rate ATCF = After Tax Cash Flow = BTCF - Tax

  9. Ex: After Tax Cash Flow

  10. Borrowed Money

  11. Class Problem A company plans to invest in a water purification system (5 year property) requiring $800,000 capital. The system will last 7 years with a salvage of $100,000. The before-tax cash flow for each of years 1 to 6 is $200,000. Regular MACRS depreciation is used; the applicable tax rate is 34%. Construct a table showing each of the following for each of the 7 years.

  12. Solution

  13. Solution

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