Which of the Following Statements About Different Tax Rates Over

question 33

Multiple Choice

Which of the following statements about different tax rates over time is false?

• A) A 5% increase in the tax rate for year 10 has less effect on NPV than a 5% increase in the tax rate for year 4.
• B) Future tax rates used in NPV calculations are estimates because Congress can change the statutory rates every year.
• C) A NPV calculation must assume a constant tax rate for all future periods.
• D) A firm's future tax rate may change because of increases or decreases in future taxable income.

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Definitions:

Diseconomies of Scale

A phenomenon where production costs per unit increase as a firm's output increases, often due to inefficiencies that arise when companies become too large.

Smaller Percentage Increase

Refers to a rate of increase that is less significant or lower in proportion compared to another.

Average Costs

The cost per unit of output, calculated by dividing the total cost of production by the number of units produced.

Constant-Cost Industry

An industry in which the cost per unit does not change as the industry's overall output changes.