The Present Value of a Perpetual Tax Shield Increases as the Firm's

question 30

Multiple Choice

The present value of a perpetual tax shield increases as the firm's tax rate _____ and the amount of principal _____.

• A)Increases; increases
• B)Increases; decreases
• C)Decreases; decreases
• D)Decreases; increases

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Definitions:

Simple Rate Of Return

The rate of return computed by dividing a project’s annual incremental accounting net operating income by the initial investment required.

Technologically Obsolete

A state where a product or equipment becomes outdated or no longer competitive due to advances in technology.

Discount Rate

This is the interest rate used in discounted cash flow analysis to determine the present value of future cash flows.

Salvage Value

The expected sale price of an asset at the end of its effective life.