Question 1

A dollar available today is always worth more than a dollar not available until a future period.

Accepted Answer

A) True 
 B)False

Question 2

Ms.Lenz has $100,000 in an investment paying 9% annual interest.Her marginal tax rate is 25%.Which of the following statements is false?

Accepted Answer

A) Ms.Lenz's annual before-tax cash flow from this investment is $9,000. 
B) If the interest is tax-exempt,Ms.Lenz's annual after-tax cash flow is $9,000. 
C) If the interest is taxable,Ms.Lenz's annual after-tax cash flow is $6,750. 
D) None of the above is false. 
A) Ms.Lenz's annual before-tax cash flow from this investment is $9,000. 
B) If the interest is tax-exempt,Ms.Lenz's annual after-tax cash flow is $9,000. 
C) If the interest is taxable,Ms.Lenz's annual after-tax cash flow is $6,750. 
D) None of the above is false.

Question 3

Which of the following statements about related party transactions is false?

Accepted Answer

A) The transaction may lack the economic tension characteristic of a transaction between unrelated parties. 
B) The transaction may reflect a fictitious market. 
C) The parties to the transaction may have compatible financial objectives. 
D) None of the above is false. 
A) The transaction may lack the economic tension characteristic of a transaction between unrelated parties. 
B) The transaction may reflect a fictitious market. 
C) The parties to the transaction may have compatible financial objectives. 
D) None of the above is false.

Question 4

If Congress enacts a temporary change in the tax law that will apply for only two taxable years,the change increases:

Accepted Answer

A) Market risk 
B) Financial risk 
C) Audit risk 
D) Tax law uncertainty 
A) Market risk 
B) Financial risk 
C) Audit risk 
D) Tax law uncertainty

Question 5

Holter Inc.owns an investment that generated $120,000 cash revenue and required $26,500 cash expenses this year.Holter's marginal tax rate is 30%.Which of the following statements is false?

Accepted Answer

A) Holter's before-tax cash flow is $93,500. 
B) If the revenue is taxable,but only $19,000 of the expenses are deductible,Holter's after-tax cash flow is $63,200. 
C) If only $105,000 of the revenue is taxable,but all the expenses are deductible,Holter's after-tax cash flow is $69,950. 
D) None of the above is false. 
A) Holter's before-tax cash flow is $93,500. 
B) If the revenue is taxable,but only $19,000 of the expenses are deductible,Holter's after-tax cash flow is $63,200. 
C) If only $105,000 of the revenue is taxable,but all the expenses are deductible,Holter's after-tax cash flow is $69,950. 
D) None of the above is false.

Question 6

Which of the following statements about tax minimization is true?

Accepted Answer

A) Tax minimization always maximizes the NPV of a transaction. 
B) Tax minimization should be the goal of business and financial planning. 
C) Tax minimization with respect to a transaction may not be the optimal strategy. 
D) Tax minimization has no effect on nontax cash flows. 
A) Tax minimization always maximizes the NPV of a transaction. 
B) Tax minimization should be the goal of business and financial planning. 
C) Tax minimization with respect to a transaction may not be the optimal strategy. 
D) Tax minimization has no effect on nontax cash flows.

Question 7

The tax savings from a deduction decreases as the taxpayer's marginal tax rate increases.

Accepted Answer

A) True 
 B)False

Question 8

A deduction is worth twice as much to a taxpayer with a 30% marginal rate than to a taxpayer with a 15% rate.

Accepted Answer

A) True 
 B)False

Question 9

Reid Inc.received a $90,000 cash payment,of which only $50,000 was taxable income.If Reid's marginal tax rate is 40%,compute Reid's after-tax cash flow.

Accepted Answer

A) $54,000 
B) $50,000 
C) $30,000 
D) None of the above 
A) $54,000 
B) $50,000 
C) $30,000 
D) None of the above

Question 10

Wilson Company has $100,000 in an investment paying 6% per annum.Each year Wilson incurs $1,200 of expenses related to this investment.Compute Wilson's annual net cash flow from this investment assuming the following.
A.Wilson's marginal tax rate is 10% and the annual expense is not deductible.
B.Wilson's marginal tax rate is 35% and the annual expense is deductible.
C.Wilson's marginal tax rate is 25% and one-half of the annual expense is deductible.

Accepted Answer

A.After-tax cash flow is $4,200 = $6,000

Question 11

XYT Company engaged in a transaction that generated $50,000 cash deposited in the company bank account and required the company to pay $12,000 out of that account.XYT's marginal tax rate is 30%.Which of the following statements is false?

Accepted Answer

A) If the deposit is taxable income and the payment is deductible,the transaction generated $26,600 after-tax cash flow. 
B) If the deposit is taxable income but the payment is nondeductible,the transaction generated $35,000 after-tax cash flow. 
C) If the deposit is not taxable income and the payment is nondeductible,the transaction generated $38,000 after-tax cash flow. 
D) None of the above is false. 
A) If the deposit is taxable income and the payment is deductible,the transaction generated $26,600 after-tax cash flow. 
B) If the deposit is taxable income but the payment is nondeductible,the transaction generated $35,000 after-tax cash flow. 
C) If the deposit is not taxable income and the payment is nondeductible,the transaction generated $38,000 after-tax cash flow. 
D) None of the above is false.

Question 12

Ms.Leik has $50,000 in an investment paying 10% annual interest.Each year,she incurs a $600 cash expense relating to the investment.If Ms.Leik's marginal tax rate is 20%,which of the following statements is true?

Accepted Answer

A) Ms.Leik's annual after-tax cash flow from this investment is $3,520. 
B) If the interest is taxable but the expense is not deductible,Ms.Leik's annual after-tax cash flow from the investment is $3,400. 
C) If the interest is tax-exempt and the expense is not deductible,Ms.Leik's annual after-tax cash flow is $5,000. 
D) None of the choices are true. 
A) Ms.Leik's annual after-tax cash flow from this investment is $3,520. 
B) If the interest is taxable but the expense is not deductible,Ms.Leik's annual after-tax cash flow from the investment is $3,400. 
C) If the interest is tax-exempt and the expense is not deductible,Ms.Leik's annual after-tax cash flow is $5,000. 
D) None of the choices are true.

Question 13

The tax cost of an income-generating transaction increases as the taxpayer's marginal tax rate increases.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following statements about marginal tax rates is true?

Accepted Answer

A) A taxpayer's marginal rate can change with every transaction. 
B) As the marginal rate increases,the tax cost of an income-generating transaction decreases. 
C) As the marginal rate increases,the tax savings from a deduction increases. 
D) Both a taxpayer's marginal rate can change with every transaction and,as the marginal rate increases,the tax savings from a deduction increases. 
A) A taxpayer's marginal rate can change with every transaction. 
B) As the marginal rate increases,the tax cost of an income-generating transaction decreases. 
C) As the marginal rate increases,the tax savings from a deduction increases. 
D) Both a taxpayer's marginal rate can change with every transaction and,as the marginal rate increases,the tax savings from a deduction increases.

Question 15

Mr.Wills invested in a business that will generate $75,000 annual after-tax cash flow in years 0 and 1 and $90,000 annual after-tax cash flow in years 2 and 3.Compute the NPV of these cash flows at a 10% discount rate using Appendix A.

Accepted Answer

A) $259,185 
B) $277,348 
C) $290,310 
D) None of the above 
A) $259,185 
B) $277,348 
C) $290,310 
D) None of the above

Question 16

The tax law prohibits related party transactions.

Accepted Answer

A) True 
 B)False

Question 17

An increase in the risk associated with a future stream of cash should result in an increase in the discount rate used in the present value calculation.

Accepted Answer

A) True 
 B)False

Question 18

Mrs.Scott received a $12,000 cash payment.If her marginal tax rate is 40%,which of the following statements is true?

Accepted Answer

A) If only $9,200 of the payment is taxable income,her after-tax cash flow is $9,200. 
B) If the payment is not taxable income,her after-tax cash flow is $12,000. 
C) If the payment is taxable income,her after-tax cash flow is $4,800. 
D) None of the above is true. 
A) If only $9,200 of the payment is taxable income,her after-tax cash flow is $9,200. 
B) If the payment is not taxable income,her after-tax cash flow is $12,000. 
C) If the payment is taxable income,her after-tax cash flow is $4,800. 
D) None of the above is true.

Question 19

Use the present value tables included in Appendix A of your textbook to compute the NPV of $12,500 received in year 5 at a 6% discount rate.

Accepted Answer

A) $8,745.50 
B) $9,337.50 
C) $9,900.00 
D) None of the above 
A) $8,745.50 
B) $9,337.50 
C) $9,900.00 
D) None of the above

Question 20

If a taxpayer decides to take advantage of an ambiguous tax issue to reduce future tax costs,the decision increases:

Accepted Answer

A) Financial risk 
B) Audit risk 
C) Tax law uncertainty 
D) Marginal tax rate uncertainty 
A) Financial risk 
B) Audit risk 
C) Tax law uncertainty 
D) Marginal tax rate uncertainty

A dollar available today is always worth more than a dollar not available until a future period.

Ms.Lenz has $100,000 in an investment paying 9% annual interest.Her marginal tax rate is 25%.Which of the following statements is false?

Which of the following statements about related party transactions is false?

If Congress enacts a temporary change in the tax law that will apply for only two taxable years,the change increases:

Holter Inc.owns an investment that generated $120,000 cash revenue and required $26,500 cash expenses this year.Holter's marginal tax rate is 30%.Which of the following statements is false?

Which of the following statements about tax minimization is true?

The tax savings from a deduction decreases as the taxpayer's marginal tax rate increases.

A deduction is worth twice as much to a taxpayer with a 30% marginal rate than to a taxpayer with a 15% rate.

Reid Inc.received a $90,000 cash payment,of which only $50,000 was taxable income.If Reid's marginal tax rate is 40%,compute Reid's after-tax cash flow.

XYT Company engaged in a transaction that generated $50,000 cash deposited in the company bank account and required the company to pay $12,000 out of that account.XYT's marginal tax rate is 30%.Which of the following statements is false?

Ms.Leik has $50,000 in an investment paying 10% annual interest.Each year,she incurs a $600 cash expense relating to the investment.If Ms.Leik's marginal tax rate is 20%,which of the following statements is true?

The tax cost of an income-generating transaction increases as the taxpayer's marginal tax rate increases.

Which of the following statements about marginal tax rates is true?

Mr.Wills invested in a business that will generate $75,000 annual after-tax cash flow in years 0 and 1 and $90,000 annual after-tax cash flow in years 2 and 3.Compute the NPV of these cash flows at a 10% discount rate using Appendix A.

The tax law prohibits related party transactions.

An increase in the risk associated with a future stream of cash should result in an increase in the discount rate used in the present value calculation.

Mrs.Scott received a $12,000 cash payment.If her marginal tax rate is 40%,which of the following statements is true?

Use the present value tables included in Appendix A of your textbook to compute the NPV of $12,500 received in year 5 at a 6% discount rate.

If a taxpayer decides to take advantage of an ambiguous tax issue to reduce future tax costs,the decision increases:

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, partnerships, llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters

Exam 3: Taxes As Transaction Costs

A dollar available today is always worth more than a dollar not available until a future period.

Ms.Lenz has $100,000 in an investment paying 9% annual interest.Her marginal tax rate is 25%.Which of the following statements is false?

Which of the following statements about related party transactions is false?

If Congress enacts a temporary change in the tax law that will apply for only two taxable years,the change increases:

Holter Inc.owns an investment that generated $120,000 cash revenue and required $26,500 cash expenses this year.Holter's marginal tax rate is 30%.Which of the following statements is false?

Which of the following statements about tax minimization is true?

The tax savings from a deduction decreases as the taxpayer's marginal tax rate increases.

A deduction is worth twice as much to a taxpayer with a 30% marginal rate than to a taxpayer with a 15% rate.

Reid Inc.received a $90,000 cash payment,of which only $50,000 was taxable income.If Reid's marginal tax rate is 40%,compute Reid's after-tax cash flow.

XYT Company engaged in a transaction that generated $50,000 cash deposited in the company bank account and required the company to pay $12,000 out of that account.XYT's marginal tax rate is 30%.Which of the following statements is false?

Ms.Leik has $50,000 in an investment paying 10% annual interest.Each year,she incurs a $600 cash expense relating to the investment.If Ms.Leik's marginal tax rate is 20%,which of the following statements is true?

The tax cost of an income-generating transaction increases as the taxpayer's marginal tax rate increases.

Which of the following statements about marginal tax rates is true?

Mr.Wills invested in a business that will generate $75,000 annual after-tax cash flow in years 0 and 1 and $90,000 annual after-tax cash flow in years 2 and 3.Compute the NPV of these cash flows at a 10% discount rate using Appendix A.

The tax law prohibits related party transactions.

An increase in the risk associated with a future stream of cash should result in an increase in the discount rate used in the present value calculation.

Mrs.Scott received a $12,000 cash payment.If her marginal tax rate is 40%,which of the following statements is true?

Use the present value tables included in Appendix A of your textbook to compute the NPV of $12,500 received in year 5 at a 6% discount rate.

If a taxpayer decides to take advantage of an ambiguous tax issue to reduce future tax costs,the decision increases:

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, partnerships, llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters