The Accounting Review Vol. 38 No. 2 1963
ASSIGNING TAX LOADS TO PROSPECTIVE PROJECTS.
Abstract
Much progress has been made in recent years in developing a complete working system for computing an accurate and dependable rate of return measure, which is useful in making investment decisions. The framework of this analysis is known as the discounted cash-flow method. It is undoubtedly true that the complete investment analysis method must be shown and explained clearly before it will be well accepted and utilized. One area of vagueness, which still, remains in the literature concerns tax loads and effective tax rates. It is clear, probably, that each project cannot be assumed isolated from the others in respect to tax loads, i.e., to call it independent from the other operations. If this assumption were made, however, the venture's tax load would be estimated by using the statutory tax rate against the expected yearly net income figures, not considering any deductions, which may be available from other parts of the company. The true worth of prospective projects can be badly underestimated when there are large amounts of re-allocable deductions, which are not allocated to the prospective ventures. It can be said that a rate of return estimate, which has been computed without considering the re-allocable deductions cannot be made to be accurate with some simple correction factors.
- DOI
- 10.2308/tar-7103452
- Volume
- 38
- Issue
- 2
- Pages
- 363-370
- Language
- en
- Sources
- openalex crossref