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A Corporation's Taxable Income Almost Never Is the Same as Its

question 143

Essay

A corporation's taxable income almost never is the same as its GAAP financial accounting income. Explain why this occurs. Use the terms permanent and temporary book-tax differences in you answer. Give at least two examples of each type of book-tax difference.


Definitions:

Retained Earnings

The portion of a company's profits that is kept or retained within the company instead of being paid out to shareholders as dividends, often used for investment or to pay off debt.

IRR

Internal Rate of Return; a financial measurement tool utilized to assess the potential profit of investment opportunities.

WACC

Weighted Average Cost of Capital, a calculation that reflects the average rate of return a company is expected to pay to all its security holders.

After-Tax Value

The value of a transaction or investment after all taxes have been deducted.

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