Principles Of Taxation For Business And Investment Planning 2020 Edition
23rd Edition
ISBN: 9781259969546
Author: Sally Jones, Shelley C. Rhoades-Catanach, Sandra R Callaghan
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 6, Problem 9QPD
To determine
Explain the reason behind the use of cash method improves the
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Suppose a government starts spending less than it receives in tax
revenue each year. All else equal, this action would cause the net
present value of firms' projects to do what:
a. Increase
b. Decrease
c. Change uncertainly
d. Not change
Barnes plans to use the preceding ratios as the starting point for discussions with SKI’s
operating executives. He wants everyone to think about the pros and cons of changing each type of current asset and how changes would interact to affect profits and EVA. Based on the data, does SKI seem to be following a relaxed, moderate, or restricted working capital policy?
Which of the following statements is CORRECT?
O The more depreciation a firm reports, the higher its tax bill, other things held constant.
O People sometimes talk about the firm's net cash flow, which is shown as the lowest entry on the income
statement, hence it is often called "the bottom line."
O Depreciation and amortization are not cash charges, so neither of them has an effect on a firm's reported
profits.
O Net cash flow (NCF) is often defined as follows: Net Cash Flow = Net Income + Depreciation and
Amortization Charges.
O Depreciation reduces a firm's cash balance, so an increase in depreciation would normally lead to a
reduction in the firm's net cash flow.
Chapter 6 Solutions
Principles Of Taxation For Business And Investment Planning 2020 Edition
Ch. 6 - Prob. 1QPDCh. 6 - Prob. 2QPDCh. 6 - Prob. 3QPDCh. 6 - Prob. 4QPDCh. 6 - For many years, Mr. K, the president of KJ Inc.,...Ch. 6 - Prob. 6QPDCh. 6 - Prob. 7QPDCh. 6 - Firm NB, which uses the cash method of accounting,...Ch. 6 - Prob. 9QPDCh. 6 - Prob. 10QPD
Ch. 6 - Prob. 11QPDCh. 6 - Firms generally prefer to engage in transactions...Ch. 6 - Describe the contrasting treatment of prepaid...Ch. 6 - Net operating losses can be carried forward...Ch. 6 - Nello Company owed 23,400 overdue rent to its...Ch. 6 - For each of the following businesses, indicate the...Ch. 6 - Assuming a 21 percent marginal tax rate, compute...Ch. 6 - Prob. 4APCh. 6 - FruAgro Company has average annual gross receipts...Ch. 6 - Prob. 6APCh. 6 - Firm F is a cash basis legal firm. In 2018, it...Ch. 6 - Prob. 8APCh. 6 - Prob. 9APCh. 6 - Prob. 10APCh. 6 - Brillo Company uses the calendar year and the cash...Ch. 6 - NC Company, a retail hardware store, began...Ch. 6 - Prob. 13APCh. 6 - Warren Company is a calendar year, cash basis...Ch. 6 - Prob. 15APCh. 6 - Wahoo Inc., a calendar year taxpayer, leases...Ch. 6 - Prob. 17APCh. 6 - Using a 21 percent rate, compute the deferred tax...Ch. 6 - Prob. 19APCh. 6 - Prob. 20APCh. 6 - Prob. 21APCh. 6 - Prob. 22APCh. 6 - Prob. 23APCh. 6 - Prob. 24APCh. 6 - Prob. 25APCh. 6 - Prob. 26APCh. 6 - Prob. 27APCh. 6 - BZD, a calendar year corporation, made the...Ch. 6 - Prob. 29APCh. 6 - Prob. 30APCh. 6 - Prob. 31APCh. 6 - Prob. 32APCh. 6 - Prob. 33APCh. 6 - GK Company, a calendar year accrual basis...Ch. 6 - Prob. 35APCh. 6 - Prob. 36APCh. 6 - TRW Inc. began business in 2019 and incurred net...Ch. 6 - Prob. 38APCh. 6 - Prob. 39APCh. 6 - Margaret, a married taxpayer filing a joint...Ch. 6 - Prob. 41APCh. 6 - Prob. 1IRPCh. 6 - Corporation DS owns assets worth 550,000 and has...Ch. 6 - Two years ago, a professional theater company paid...Ch. 6 - Prob. 4IRPCh. 6 - Prob. 5IRPCh. 6 - Prob. 6IRPCh. 6 - Every December, Maxo Inc., an accrual basis,...Ch. 6 - Prob. 8IRPCh. 6 - Prob. 9IRPCh. 6 - Corporation WJ began business in 2019 and elected...Ch. 6 - Prob. 11IRPCh. 6 - Bontaine Publications, an accrual basis, calendar...Ch. 6 - Prob. 2RPCh. 6 - Prob. 3RPCh. 6 - Prob. 4RPCh. 6 - Company Y began business in February 2019. By the...Ch. 6 - Prob. 2TPC
Knowledge Booster
Similar questions
- During the last few years, Jana Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Jana’s cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task: The firm’s tax rate is 40%. The current price of Jana’s 12% coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. Jana does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $116.95. Jana would incur flotation costs equal to 5% of the proceeds on a new issue. Jana’s common stock is currently selling at $50 per share. Its last dividend (D0) was $3.12, and dividends are expected to grow at a constant rate of 5.8% in the foreseeable future. Jana’s beta is 1.2, the yield on T-bonds is 5.6%, and the market risk premium is estimated to be 6%. For the own-bond-yield-plus-judgmental-risk-premium approach, the firm uses a 3.2% risk premium. Jana’s target capital structure is 30% long-term debt, 10% preferred stock, and 60% common equity. To help you structure the task, Leigh Jones has asked you to answer the following questions: (1) What sources of capital should be included when you estimate Jana’s weighted average cost of capital? (2) Should the component costs be figured on a before-tax or an after-tax basis? (3) Should the costs be historical (embedded) costs or new (marginal) costs?arrow_forwardExplain intuitively how a manager could tweak the salvage value of machinery to benefit from an expected reduction in the corporate tax rate taking place towards the end of an investment. What are the shortcomings of the payback period criterion? Which of these shortcomings are accounted for in the dynamic payback period criterion? Which are not? “If a stock had high returns so far, it will have low returns in the future”. Discuss whether this statement is true or false, based on the knowledge of the different theories and models out there.arrow_forwardd) Explain intuitively how a manager could tweak the salvage value of machinery to benefit from an expected reduction in the corporate tax rate taking place towards the end of an investment.arrow_forward
- Which statement about the cost of capital is incorrect? * A. If a company’s tax rate increases then, all else equal, its WACC will increase. B. A company’s target capital structure affects its WACC. C. WACC calculations is based on the after-tax costs of all individual capital components. D. Flotation costs can increase the WACC.arrow_forwardConsider the effect that corporate profit taxes have on investing. Look back at Figure 15.4. Suppose that the r line is the rate of return a firm earns before taxes. If corporate profit taxes are imposed, the firm’s after-tax returns will be lower (and the higher the tax rate, the lower the after-tax returns). If the firm’s decisions about R&D spending are based on comparing after-tax returns with the interest-rate cost of funds, how will increased corporate profit taxes affect R&D spending? Does this effect modify your views on corporate profit taxes? Discuss.arrow_forwardKevin is an employee in the finance department at Easy Trader Co. and is performing some financial analysis on the company's current year's performance. Before he can begin looking at a variety of nonfinancial factors, including customer conversion rates and internal promotion scores, he will need to evaluate some financial performance measures. Which of the following provides the most accurate rationale for evaluating economic value added? ◇ Evaluating profitability using a consistent measure like earnings without interest ○ Understanding the cash implications of a company's primary operating activities ◇ Evaluating after-tax income earned beyond the company's cost of capital on its invested capital O Evaluating income earned beyond the minimum required investmentarrow_forward
- GIVEN INFORMATION: In recent years, EVBOLT Industries has faced challenges due to the high cost of capital, limiting its ability to undertake significant capital investments. However, with a recent decline in capital costs, the company is now considering a substantial expansion program proposed by the marketing department. As an assistant to Leigh Jones, the financial vice president, your initial task is to estimate EVBOLT's cost of capital. Jones has provided relevant data for this task: (1) The firm's tax rate is 40%. (2) The current price of EVBOLT's 12% coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. The company does not use short-term interest-bearing debt on a permanent basis, and new bonds would be privately placed with no flotation cost. (3) The current price of the firm's 10%, $100 par value, quarterly dividend, perpetual preferred stock is $116.95. Flotation costs equal to 5% of the proceeds would be incurred on a new issue. (4)…arrow_forwardIf the firm is in a very competitive, mature industry, what effect will the competitive conditions have on residual income for the firm and others in the industry? Now suppose the firm holds a competitive advantage in its industry, but the advantage is not likely to be sustainable for more than a few years. As the firm’s competitive advantage diminishes, what effect will that have on that firm’s residual income? and If a firm’s residual income for a particular year is positive, does that mean the firm was profitable? Explain. If a firm’s residual income for a particular year is negative, does that mean the firm necessarily reported a loss on the income statement? Explain. What does it mean when a firm’s residual income is zero?arrow_forwardWhat is one potential impact of tax reforms on small businesses? a) Increased compliance costs b) Decreased access to capital c) Reduced competition d) Expansion of market reacharrow_forward
- There is an old business saying that “You shouldn’t be inbusiness if your company doesn’t earn higher than bankrates.” This means that if a company is to succeed, its return on assets should be significantly higher than its cost of bor-rowing. Why is this so important?arrow_forwardWhich of the following statements is CORRECT? Group of answer choices Since debt capital can cause a company to go bankrupt but equity capital cannot, debt is riskier than equity, and thus the after-tax cost of debt is always greater than the cost of equity. The tax-adjusted cost of debt is always greater than the interest rate on debt, provided the company does in fact pay taxes. If a company assigns the same cost of capital to all of its projects regardless of each project’s risk, then the company is likely to reject some safe projects that it actually should accept and to accept some risky projects that it should reject. Because no flotation costs are required to obtain capital as retained earnings, the cost of retained earnings is generally lower than the after-tax cost of debt. Higher flotation costs tend to reduce the cost of equity capital.arrow_forwardDiscuss and explain the difference between profit/loss and cash flow. How could a company have positive cash flow, but show a net loss at year end? What are some examples of industries and/or companies that might generate subtantial cash flow, but could lose money? Conversely, what are some examples of industries and/or companies that might generate very limited cash flow, but could show a profit at year end?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning