Question

Consider the following statements about taxes and after-tax cash flows: I. Capital budgeting analyses should incorporate...

Consider the following statements about taxes and after-tax cash flows: I. Capital budgeting analyses should incorporate after-tax cash flows rather than before-tax cash flows. II. Added company revenues will result in lower taxes for a firm. III. Operating expenses may actually provide a tax benefit for an organization. Which of the above statements is (are) correct? Select one: a. I and II. b. I and III. c. I only. d. III only. e. II only.

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Answer #1

B is the correct answer.

I statement is correct becuase we take after cash flows while making decision for capital projects. After tax cash flow is to be considered because tax is an important consideration for decision making and it is compulsory payable expenses.

II statement is wrong becasue when we add revenues means growing sales would result in more profit for the firm and more profit will lead to more taxes.

III statement is Correct becasuse Expenses will result in lower profit and lower profit means lower taxes.

So I and III is correct.

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