Why Does the Tax Amount Need to Be Adjusted When

question 36

Multiple Choice

Why does the tax amount need to be adjusted when valuing a firm using the cash flow from assets approach?

• A) The tax effect of the dividend payments must be eliminated.
• B) Only straight-line depreciation can be used when computing taxes for valuation purposes.
• C) Taxes must be computed for valuation purposes based solely on the marginal tax rate.
• D) The tax effect of the interest expense must be removed.
• E) The taxes must be computed for valuation purposes based on the average tax rate for the past ten years.

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Definitions:

Quantity Supplied

Refers to the amount of a good or service that producers are willing to sell at a given price over a specific period.

Quantity Demanded

The total amount of a good or service that consumers are willing to purchase at a given price.

Rent-Controlled Apartments

Rent-controlled apartments are rental units subject to governmental regulations that limit the amount landlords can charge for rent, often to protect tenants from rapid price increases.

Lower Rents

Lower rents refer to reduced prices for leasing properties, often as a result of market conditions, government policies, or landlord decisions.