Mr Cox Has the Choice Between Two Transactions

question 45

Multiple Choice

Mr. Cox has the choice between two transactions. Transaction A will generate $500,000 taxable cash flow in the current year (year 0) . Transaction B will generate $460,000 cash flow in the current year, but Mr. Cox will not be required to report $460,000 income until next year (year 1) . Mr. Cox has a 40% marginal tax rate and uses a 10% discount rate to compute NPV. Use Appendix A of your textbook provided to determine which of the following statements is true?

• A) Mr. Cox should choose transaction A because it generates more before-tax cash flow.
• B) Mr. Cox should choose transaction A because its NPV exceeds transaction B's NPV.
• C) Mr. Cox should choose transaction B because the tax cost is deferred one year.
• D) Mr. Cox should choose transaction B because its NPV exceeds transaction A's NPV.

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Definitions:

All Torts

Refers to the comprehensive range of wrongful acts or infringements of rights that lead to civil legal liability.

Committed by Employee

Acts or omissions carried out by an employee in the course of their employment.

Dismissal Without Notice

A termination of employment where the employer ends the employment relationship without any prior notice to the employee.

Employee Wrongdoing

Actions by an employee that violate company policies or laws.