Question

When analyzing the cash flows from a new project proposal, a company should always use its...

When analyzing the cash flows from a new project proposal, a company should always use its average tax rate.

Select one: O a. True O b. False

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

In most of the questions that we study in finance theory and solve for NPV they hardly differentiate between average tax rate and marginal tax rate but when we are evaluating the cash flow from a new project the company should consider using its marginal tax rate because marginal tax rate is the tax rate on next income.

So, the answer is b. False

Marginal tax rate is more appropriate if the cash flows are very large from the current income because then the tax rate will also be different.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Turner Enterprises is analyzing a project that is expected to have annual cash flows of $46,400,...
Turner Enterprises is analyzing a project that is expected to have annual cash flows of $46,400, $51,300 and –$15,200 for Years 1 to 3, respectively. The initial cash outlay is $65,900 and the discount rate is 12 percent. What is the modified IRR? O 16.98% O 17.77% O18.13% O 17.04% O 18.66%
1. Calculating project cash flows: Why do we use forecasted incremental after-tax free cash flows instead...
1. Calculating project cash flows: Why do we use forecasted incremental after-tax free cash flows instead of forecasted accounting earnings in estimating the NPV of a project? 2. The FCF calculation: How do we calculate incremental after-tax free cash flows from forecasted earnings of a project? What are the common adjustment items? 3. The FCF calculation: How do we adjust for depreciation when we calculate incremental after-tax free cash flow from EBITDA? What is the intuition for the adjustment? 4....
Since opportunity costs are not actual cash flows, they should not be included when we estimate...
Since opportunity costs are not actual cash flows, they should not be included when we estimate cash flows for a project. True False
A firm should always use a full-service AD agency to carry out its AD requirement Select...
A firm should always use a full-service AD agency to carry out its AD requirement Select one A. True B. False
A company embarks on a new project. The project will have free cash flows at the...
A company embarks on a new project. The project will have free cash flows at the end of one year of 60 million if successful and 20 million if not successful. The probability that the project is successful is 0.4. The cost of capital if the project is unlevered is 20%. The cost of debt capital is 5%. Calculate the rate of return to investors if 10,000,000 is financed with debt.
The IRR evaluation method assumes that cash flows from the project are reinvested at the same...
The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, in reality the reinvested cash flows may not necessarily generate a return equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project’s IRR. Consider the following situation: Green Caterpillar Garden Supplies Inc. is analyzing a project that requires an initial investment of $2,500,000. The project’s expected cash flows are: Year...
Relevant cash flows ate the specific set of cash flows that a firm can expect if...
Relevant cash flows ate the specific set of cash flows that a firm can expect if it implements the project. If the firm doesn’t implement the project, the cash flows won’t exist. So it is the additional cash flows that the company can expect from the project. True or False If a firm adopts a residual distribution policy, distributions are determined as a residual item. Therefore, the better the firm's investment opportunities, the higher its distributions should be. True False...
Generating positive cash flows from operations is one of the most important cash flow activities of...
Generating positive cash flows from operations is one of the most important cash flow activities of a company. Select one: True False
The IRR evaluation method assumes that cash flows from the project are reinvested at the same...
The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, in reality the reinvested cash flows may not necessarily generate a return equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project’s IRR. Consider the following situation: Blue Llama Mining Company is analyzing a project that requires an initial investment of $450,000. The project’s expected cash flows are: Year Cash...
When a company structures its sales commissions, it should always base them on sales dollars alone,...
When a company structures its sales commissions, it should always base them on sales dollars alone, without considering the relative contribution margin of various products sold. true or false
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT