After-tax Analysis

ISE 182112 – Ekonomi Teknik

Referensi
Newnan, D.G, Eschenbach, T.G & Lavelle, J.P (2012) Engineering
Economic Analysis, 11th edition, Oxford University Press, New York.
Chapter 12
Income Taxes
❑ The amount of income taxes to be paid depends on :
1. Taxable income
2. Income tax rates
Individuals
1. Taxable Income
1. Calculate gross income.
Gross income = Wages, salary etc. + Interest income
+ Dividends
+ Capital gains
+ Unemployment compensation
+ Other income

2. Calculate adjusted gross income.

Adjusted gross income = Gross income – Adjustments
(Adjustments can be retirement plan contributions, college tuition, student loan, health savings
account, rental activities, etc.)
3. From adjusted gross income, individuals may deduct the following items :
1. Personal Exemptions ($3,650)
Provided for each person who depends on gross income for living.
2. Deductions
Each taxpayer may either itemize the deductions or take a standard deduction.
• Itemized Deductions
Excessive medical and dental expenses, home mortgage interest, charitable
contributions, casualty and the theft losses, etc.
• Standard Deductions
Single taxpayer : $5,700
Married taxpayer filing a joint return : $114,00

Taxable income = Adjusted gross income – Personal exemptions

– Itemized or standard deduction
Taxable income = Adjusted gross income – Personal exemptions
– Itemized or standard deduction

Example 1
An unmarried taxpayer with no dependents expects an adjusted gross income of $47,000 in a
given year. His non-business deductions are expected to be $3,400. Calculate his taxable income.

Adjusted gross income = $47,000

Personal exemption = $3,650
Itemized deductions = $3,400

Taxable income = $47,000 - $3650 - $3,400

= $39,950
 2. Income Tax Rates

❑ Unmarried

0
10%
8,350
15%
33,950
25%
82,250
28%
171,550
33%
372,950
35%
……….
Two People File a Joint Return
Example 2
Calculate the income tax if someone has $ 39,950 taxable income.
Income tax = $4,675 + [25% x ($39,950 – $33,950)]
= $6,175
Corporate
 1. Taxable Income
Classification of business expenditures:
1. Expenditures for depreciable assets → capital expenditures
→ facilities or productive equipment with useful lives excess of one year
2. Expenditures for non-depreciable assets
→ land and assets subject to depletion → capital expenditures
3. All other business expenditures → expenses
→ ordinary and necessary expenditures of operating a business (e.g. labor costs,
materials, facilities and productive equipment with a useful life of one year or
less, and so forth)

Taxable income = Gross income – All expenditures except capital exp. – Depreciation
and depletion charges
Taxable income = Gross income – All expenditures except capital exp. – Depreciation
and depletion charges

Example 3
A firm had $200,000 of gross income from sales. The firm bought an initial machine for $60,000
with 3 year useful life and no salvage value (the firm used straight line depreciation). All other
expenditures cost $100,000. Calculate the taxable income for that year.

Gross income = $200,000

All expenditures except capital expenditures = $100,000
Depreciation charge = 1/3 x ($60,000 - 0) = $20,000

Taxable income = 200,000 – 100,000 – 20,000= $80,000

2. Income Tax Rates
Example 4
Calculate the income tax if a corporate has $80,000 taxable income.
Income tax = $13,750 + [34% x ($80,000 – $75,000)]
= $15,450
Example 5
A firm bought a land for $220,000, had a $900,000 factory built (20 year useful life, no salvage
value), and installed $650,000 worth of equipment (10 year useful life, no salvage value). The plant
was completed and operations begun. The gross income for the calendar year was $450,000. All
operating expenses (excluding capital exp.) were $100,000. The firm used straight line
depreciation. Calculate the income tax for the year.

Taxable Income = Gross income – All expenditures except capital exp. – Depreciation and
depletion charges
= $450,000 – $100,000 – ($900,000/20) - ($650,000/10)
= $240,000

Income Tax = $22,250 + (39% x ($240,000 - $100,000))

= $76,850
Perhitungan Pajak Penghasilan Pribadi
(PPh 21) di Indonesia
 Bukti
Pemotongan
PPh 21
Formulir
SPT
 Gross Income

Adjustments

Adjusted Gross Income

Standard Deduction
Taxable Income

Income Tax
Tarif PPh 21 Bagi Wajib Pajak Pribadi
❑ Pasal 17 ayat (1) huruf a Peraturan Direktur Jenderal Pajak Nomor PER-
32/PJ/2015 (berlaku bagi Wajib Pajak yang memiliki NPWP)
Penghasilan Tahunan Tarif Pajak
0 s/d Rp. 50.000.000,- 5%

Rp. 50.000.000,- s/d Rp. 250.000.000,- 15%

Rp. 250.000.000,- s/d Rp. 500.000.000.- 25%

Di atas Rp. 500.000.000,- 30%

❑ Untuk Wajib Pajak yang tidak memiliki NPWP, dikenai tarif 20% lebih tinggi dari
mereka yang memiliki NPWP

Sumber : http://www.online-pajak.com
After-tax Analysis
After-tax Analysis
Considering the effect of income taxes in economic analysis.
The principal elements in an after-tax analysis :

Before-tax cash flow

Depreciation

Taxable income = Before-tax cash flow – Depreciation

Income taxes = Taxable income x Tax rate

After-tax cash flow = Before-tax cash flow – Income taxes

Example 6
A medium-sized profitable corporation is considering the purchase of a $3000 used pickup truck
for use by the shipping and receiving department. During the truck’s five year useful life, it is
estimated the firm will save $800 per year after paying all the costs of owning and operating the
truck. Truck salvage value is estimated at $750 (the company uses straight line depreciation).
Compute the after-tax cash flow (use 34% tax rate).

Before-tax Taxable Income Taxes After-tax

Year Depreciation
cash flow Income (34%) cash flow
0 -$3000 -$3,000
1 $800 $450 $350 -$119 $681
2 $800 $450 $350 -$119 $681
3 $800 $450 $350 -$119 $681
4 $800 $450 $350 -$119 $681
$800 $450 $350 -$119 $681
5
$750 $750
Example 7
For the earlier example:
a. Calculate the before-tax rate of return
b. Calculate the after-tax rate of return

Before-tax
Year
cash flow a. Before-tax rate of return :
0 -$3000
$3000 = $800(P/A,i,5) + $750(P/F,i,5) → i = 15.7%
1 $800
2 $800
3 $800
If MARR = 15%
4 $800 → The alternative is desirable
$800
5
+$750
 After-tax b. After-tax rate of return :
Year
cash flow
0 -$3,000
$3000 = $681(P/A,i,5) + $750(P/F,i,5)
1 $681 → i = 10.6%
2 $681
3 $681 If MARR = 15%
4 $681 → The alternative is not desirable
$681
5
+$750
Excercise
Excercise 1
To reduce lost sales, a firm is planning to invest an additional $20,000 in inventory. It is
believed that this will increase the before-tax profit of the firm, that is $1000 in the first
year and will continue to increase on a $500 per year gradient. This investment may be
recovered at the end of a 4 year analysis period by selling it and not replenishing the
inventory. Compute the before tax and after tax rate of return (use 39% tax rate).
→ Inventory is not considered a depreciable asset
Excercise 2

Before-tax
Year
cash flow
0 -$1,000 The project has a 5 year useful life. DDB depreciation will be
1 500 used assuming a $125 salvage value. The income tax rate is
2 340
34%.
3 244 If the firm requires a 10% after tax rate of return, should the
4 100 project be undertaken?
100
5
125 (SV)
Excercise 3

Alt. 1 Alt.2
Year
BTCF BTCF
0 -$10,000 -$20,000
1-10 4,500 4,500
11-20 0 4,500

Both alternative will be depreciated by SL using a ten year depreciable life and no salvage value.
Neither alternative is to be replaced at the end of its useful life.
Using MARR 10% after taxes and 34% tax rate, which alternative should be selected :
a. Using Annual Worth analysis
b. Using BCR analysis

Answer: a. AW1 = $1,214.94 ; AW2 = $1,113.76 → Select Alt. 1

b. △BCR = 0.914 → Select lower cost alternative (Alt. 1)
Terima Kasih
Yani Herawati
Program Studi Teknik Industri
UNPAR
yani.herawati@unpar.ac.id