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Programming for the Tax Interactivities of Capital Investment and Financing Decisions

Programming for the Tax Interactivities of Capital Investment and Financing Decisions Capital investment decisions need to take account of the relevant cash flows which are incremental to each project. The tax effects of a project are clearly an example of relevant cash flows. However, the tax effects of one project may impact upon the tax effects of another. For example, one project may result in significant capital expenditure, which could change the firm's basic profits such that a different marginal tax rate may be applied. The marginal tax rate of a second project depends upon whether the first project is accepted. Thus capital investment decisions need to be made considering projects jointly. The importance of this has been highlighted by a number of authors, including Fawthrop 1971, Grundy and Burns 1979 and Rickwood and Groves 1979. Simulation models have been built by Hodgkinson 1989, whereas optimisation models have been developed by Berry and Dyson 1979, Pointon 1982 and Ashford, Berry and Dyson 1986. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Management Research News Emerald Publishing

Programming for the Tax Interactivities of Capital Investment and Financing Decisions

Management Research News , Volume 15 (2): 2 – Feb 1, 1992

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
0140-9174
DOI
10.1108/eb028193
Publisher site
See Article on Publisher Site

Abstract

Capital investment decisions need to take account of the relevant cash flows which are incremental to each project. The tax effects of a project are clearly an example of relevant cash flows. However, the tax effects of one project may impact upon the tax effects of another. For example, one project may result in significant capital expenditure, which could change the firm's basic profits such that a different marginal tax rate may be applied. The marginal tax rate of a second project depends upon whether the first project is accepted. Thus capital investment decisions need to be made considering projects jointly. The importance of this has been highlighted by a number of authors, including Fawthrop 1971, Grundy and Burns 1979 and Rickwood and Groves 1979. Simulation models have been built by Hodgkinson 1989, whereas optimisation models have been developed by Berry and Dyson 1979, Pointon 1982 and Ashford, Berry and Dyson 1986.

Journal

Management Research NewsEmerald Publishing

Published: Feb 1, 1992

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