Just as It Is Important for an Investor to Consider

question 16

Multiple Choice

Just as it is important for an investor to consider the impact of financial leverage on her return, it is also necessary to account for the effect of income taxes. How would the presence of income taxes impact the levered going-in IRR?

• A) Income taxes increase the levered going-in-IRR
• B) Income taxes reduce the levered going-in-IRR
• C) Income taxes do not affect the going-in-IRR
• D) Income taxes cause the levered going-in-IRR to become invalid as a measure of return.

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Definitions:

Extra Pay

Additional compensation provided to employees on top of their regular salary, often for overtime, bonuses, or for working under special conditions.

Free Rider Effect

The phenomenon where individuals benefit from resources or goods without contributing to the cost or effort.

White-Collar Work

Employment characterized by office or administrative tasks, as opposed to manual or labor-intensive work.

Highly Specialized

Referring to a high level of expertise or focus in a narrow area of a field or profession.