Question 1

The difference between revenues and expenditures for inputs is known as

Accepted Answer

A)  profits. 
B)  debits. 
C)  cash flow. 
D)  net revenue. 
A)  profits. 
B)  debits. 
C)  cash flow. 
D)  net revenue. C

Question 2

Firms use the discount rate to

Accepted Answer

A)  compute present value. 
B)  account for loss inventory. 
C)  calculate profit margins. 
D)  repatriate parent companies. 
A)  compute present value. 
B)  account for loss inventory. 
C)  calculate profit margins. 
D)  repatriate parent companies. A

Question 3

Assume that the user cost of capital (C)is simply
$$C = \frac { ( r + \delta ) } { ( 1 - \Theta ) ( 1 - t ) }$$ where r is the after tax rate of return,δ is the depreciation rate,Θ is the corporate tax rate and,r is the individual tax rate.Now assume further that the after-tax rate of return is 10 percent and the economic depreciation rate is 2 percent.The firm faces corporate taxes of 35 percent with an individual tax rate of 25 percent.What is the user cost of capital in this case?

Accepted Answer

Solving for C yields C = (0.10 + 0.02)/(1 - 0.35) (1 - 0.25)= 0.2462 or 24.62%.

Question 4

Estimates of the effect of the user cost on investment vary greatly.

Accepted Answer

A)  True 
B)  False 
C)  Uncertain 
A)  True 
B)  False 
C)  Uncertain

Question 5

Full integration would lower the effective tax rate on capital and,therefore,lead to increased saving.

Accepted Answer

A)  True 
B)  False 
C)  Uncertain 
A)  True 
B)  False 
C)  Uncertain

Question 6

A plausible elasticity of investment with respect to the user cost is

Accepted Answer

A)  0.52 
B)  1.62 
C)  0.40 
D)  2.22 
A)  0.52 
B)  1.62 
C)  0.40 
D)  2.22

Question 7

When calculating the user cost of capital,the after-tax rate of return and the economic rate of depreciation interact by

Accepted Answer

A)  multiplication. 
B)  subtraction. 
C)  division. 
D)  addition. 
A)  multiplication. 
B)  subtraction. 
C)  division. 
D)  addition.

Question 8

Most states do

Accepted Answer

A)  not collect any corporate income taxes. 
B)  have corporate income taxes. 
C)  not recognize entities known as corporations. 
D)  none of these answer options are correct. 
A)  not collect any corporate income taxes. 
B)  have corporate income taxes. 
C)  not recognize entities known as corporations. 
D)  none of these answer options are correct.

Question 9

Investment tax credits (ITCs)are _________ the firm's tax bill when particular capital assets are purchased.

Accepted Answer

A)  deducted from 
B)  added to 
C)  close to zero for 
D)  none of these answer options are correct. 
A)  deducted from 
B)  added to 
C)  close to zero for 
D)  none of these answer options are correct.

Question 10

According to research,after the Tax Reform Act of 1986,the effective marginal tax rate on equipment has

Accepted Answer

A)  decreased substantially. 
B)  stayed basically the same. 
C)  increased. 
D)  decreased slightly. 
A)  decreased substantially. 
B)  stayed basically the same. 
C)  increased. 
D)  decreased slightly.

Question 11

Your textbook highlights a debate that has been going on for some years.The issue is whether there should be a corporation tax,given that corporations are nothing more than groups of people.Should there be a corporation tax? Why or why not?

Accepted Answer

The debate will be answered by investiga

Question 12

In the short run,a tax on economic profits can be shifted.

Accepted Answer

A)  True 
B)  False 
C)  Uncertain 
A)  True 
B)  False 
C)  Uncertain

Question 13

Cash flow is the difference between assets and revenues.

Accepted Answer

A)  True 
B)  False 
C)  Uncertain 
A)  True 
B)  False 
C)  Uncertain

Question 14

Interest deductibility does not provide an incentive for debt finance.

Accepted Answer

A)  True 
B)  False 
C)  Uncertain 
A)  True 
B)  False 
C)  Uncertain

Question 15

The cost that a firm incurs as a consequence of owning an asset is known as

Accepted Answer

A)  accelerated depreciation. 
B)  expensing. 
C)  user cost of capital. 
D)  economic depreciation. 
A)  accelerated depreciation. 
B)  expensing. 
C)  user cost of capital. 
D)  economic depreciation.

Question 16

For firms,dividends are not deductible.They are,however,taxed preferentially at the individual level.

Accepted Answer

A)  True 
B)  False 
C)  Uncertain 
A)  True 
B)  False 
C)  Uncertain

Question 17

Before applying the 35 percent tax rate,firms may deduct

Accepted Answer

A)  employee compensation. 
B)  interest payments. 
C)  depreciation allowances. 
D)  all of these answer options are correct. 
A)  employee compensation. 
B)  interest payments. 
C)  depreciation allowances. 
D)  all of these answer options are correct.

Question 18

Corporations,like individuals,face an alternative minimum tax (AMT).

Accepted Answer

A)  True 
B)  False 
C)  Uncertain 
A)  True 
B)  False 
C)  Uncertain

Question 19

Profits earned by subsidiary are taxed even if it is not repatriated to the parent company as dividends because they are considered as income for the parent company.

Accepted Answer

A)  True 
B)  False 
C)  Uncertain 
A)  True 
B)  False 
C)  Uncertain

Question 20

When each stockholder incurs a tax liability on his or her share of the earnings of a corporation (whether or not the earnings are distributed),this is known as

Accepted Answer

A)  being fully funded. 
B)  full integration. 
C)  full loss offset. 
D)  fully imputed rent. 
A)  being fully funded. 
B)  full integration. 
C)  full loss offset. 
D)  fully imputed rent.

Exam 19: The Corporation Tax

The difference between revenues and expenditures for inputs is known as

Firms use the discount rate to

Estimates of the effect of the user cost on investment vary greatly.

Full integration would lower the effective tax rate on capital and,therefore,lead to increased saving.

A plausible elasticity of investment with respect to the user cost is

When calculating the user cost of capital,the after-tax rate of return and the economic rate of depreciation interact by

Most states do

Investment tax credits (ITCs)are _________ the firm's tax bill when particular capital assets are purchased.

According to research,after the Tax Reform Act of 1986,the effective marginal tax rate on equipment has

Your textbook highlights a debate that has been going on for some years.The issue is whether there should be a corporation tax,given that corporations are nothing more than groups of people.Should there be a corporation tax? Why or why not?

In the short run,a tax on economic profits can be shifted.

Cash flow is the difference between assets and revenues.

Interest deductibility does not provide an incentive for debt finance.

The cost that a firm incurs as a consequence of owning an asset is known as

For firms,dividends are not deductible.They are,however,taxed preferentially at the individual level.

Before applying the 35 percent tax rate,firms may deduct

Corporations,like individuals,face an alternative minimum tax (AMT).

Profits earned by subsidiary are taxed even if it is not repatriated to the parent company as dividends because they are considered as income for the parent company.

When each stockholder incurs a tax liability on his or her share of the earnings of a corporation (whether or not the earnings are distributed),this is known as

Introduction

Tools of Positive Analysis

Tools of Normative Analysis

Public Goods

Externalities

Political Economy

Education

Cost-Benefit Analysis

The Health Care Market

Government and the Market for Health Care

Social Security

Income Redistribution: Conceptual Issues

Expenditure Programs for the Poor

Taxation and Income Distribution

Taxation and Efficiency

Efficient and Equitable Taxation

The Personal Income Tax

Personal Taxation and Behavior

Deficit Finance

Fundamental Tax Reform: Taxes on Consumption and Wealth

Public Finance in a Federal System

Filters