A note on after-tax analysis where capitalized costs are depreciated

Forest management often requires relatively long-term and capital intensive investments. Economic analysis of timber management alternatives can therefore be an extremely important aspect of decision-making. Investment analysis techniques are prominent in forest management texts and have also been the subject of many articles in the forestry literature. Any forestry investment analysis involves several important aspects. Topics included in reports by Gunter and Haney (1984) and Bullard et al. (1986), for example, include the treatment of inflation, income taxes, risk, and the choice of an appropriate discount rate. In this article, we focus on a very specific aspect of after-tax investment analysis-the appropriate, after-tax discount· rate where capitalized costs are depreciated. We discuss this aspect in particular because previous forestry texts, reports, and articles have not been explicit in stating that a tax adjusted discount rate is necessary in such cases