Thursday, June 7, 2012

Capital Budgeting and Taxes

Tax credits on renewable-energy are set to expire beginning at the end of 2012, which will likely reduce capital investments in these projects. In fact, one analyst notes that wind projects have already slowed down since a project begun now could not be completed by the end of the year and capture the tax break. Obviously, the tax credits are an important cash flow to these renewable-energy projects. The article also states that before the recession, solar facilities earned a 6 to 8 percent aftertax IRR, while the current aftertax IRR is more than 10 percent. A question: Since the article states an aftertax IRR, is this any different than the IRR calculated in the textbook? http://www3.cfo.com/article/2012/6/tax_renewable-energy-wind-solar-investment-tax-credit-production-tax-credit?currpage=1