Economic Evaluations

Formulas are developed and presented graphically which permit the rapid evaluation of projects, with the minimum of data and calculation. Methods for more detailed appraisals are discussed with particular reference to the Canadian income taxes, but U.S. taxes are also treated. "Rate of return", or "profitability index", is related to payout times and "profit ratio" for 100 per cent working interest cases. Introduction Many arguments can be put forth both for and against the inclusion of a tax factor in economic analyses. No attempt is made in this paper to resolve this particular controversy, other than to suggest that the payment of income taxes is inevitable, sooner or later, and in one form or another, for any company that is to survive beyond an initial expansion stage. In the first part of this paper, the formulas and arguments are developed both for those who (for policy or other reasons) ignore income taxes, as well as for those who face the prospect of reaching a taxable position in the near future. For the latter cases, it is assumed that the project under consideration is subject to various income tax rates from zero upwards. This, of course, can lead to a conservative estimate, and further, it allows a consistent series of analyses to be made in line with any given tax policy which will be directly comparable as to profitability.