 |  Plant Design and Economics for Chemical Engineers, 5/e Max S. Peters,
University of Colorado
Klaus Timmerhaus,
University of Colorado, Boulder
Ronald E. West,
University of Colorado, Boulder
Interest, Time Value of Money, Taxes, and Fixed Charges
Chapter OverviewA
s noted earlier, there are many economic parameters besides capital investment
and operating expenses that can have an effect on the decision of whether to
appropriate funds for a proposed project. This is particularly true when the
required funds for the project may have to be borrowed. If such is the case, there will be an
interest charge for the use of the required funds. If internal funds are available, a decision
must be made between the use of the funds for the proposed project or for some other, more
profitable project. In the decision-making process, a careful analysis of the time value of
money will help establish the worth of earnings and investments.
Consideration must also be given to the effect of taxes on the net profit of the proposed
project. For example, income taxes presently range from 15 to 39 percent of the
taxable income, and such a tax may have a major impact on the net, after-taxes, earnings
of a project. In addition to income taxes, there are other fixed charges such as
property taxes, depreciation, and insurance that, once the proposed assets have been
acquired, continue no matter what level of business is maintained.
This chapter examines the various forms of interest available to the borrower or the
lender. It identifies various means of assessing the worth of earnings and investments that
can provide meaningful economic comparisons between various investment opportunities.
Finally, the chapter provides a summary of the taxes and fixed charges that need to
be considered in the preparation of the economic assessment of the proposed project. |
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2003 McGraw-Hill Higher Education