Exam 3: Taxes as Transaction Costs

Hower Inc.'s tax advisor recommends that the corporation take a deduction that the IRS has disallowed for other corporations in similar circumstances. If Hower decides not to take the deduction, it is reducing:  

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

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

Private market transactions create an opportunity for bilateral tax planning.  

Mr Basel made an investment that will generate the following cash flows over a three-year period. Use Appendix A. If Mr Basel's marginal tax rate over the three year period is 20% and he uses a 6% discount rate, compute the NPV of the transaction.

If Congress enacts legislation late in the year that is retroactive to the beginning of the year, the legislation increases:  

The tax law prohibits related party transactions. 

The arm's length transaction presumption is unreliable for transactions between related parties.  

Mr and Mrs Dean own an investment that generated $60,000 cash revenue and required $12,000 cash expenses this year. The Deans' marginal tax rate is 25%. Which of the following statements is true? 

Card bought an investment that will generate the following cash flows over a three-year period. Use Appendix A. If Ms. Card's marginal tax rate over the three year period is 40% and she uses a 6% discount rate, compute the NPV of the transaction.

Mr Jessel sold 4,200 shares of stock in a publicly held corporation through his stock broker. This transaction occurred in a private market. 

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

Zazu Company is considering modifying a transaction to reduce the current year tax cost by $50,000. Which of the following statements is false?  

Which of the following statements about tax minimization is true? 

The before-tax cash flow and after-tax cash flow from a nontaxable transaction are equal.  

Owen purchased 2,000 shares of General Electric common stock through her broker. This purchase is an example of a:  

Pepper Company, which has a 25% marginal tax rate, must choose between two alternative transactions. Transaction 1 requires a $20,400 cash outlay that is a deductible current expense. Transaction 2 requires a $15,000 cash outlay that is a nondeductible current expense. Which transaction has the lesser after-tax cost to Pepper?  

The transacting parties can engage in bilateral tax planning when a transaction occurs in a: 

Which of the following statements about discount rates is false?  

Which of the following statements about different tax rates over time is false?