Which of the Following Statements Is FALSE

question 67

Multiple Choice

Which of the following statements is FALSE?

• A) Because only the tax consequences of depreciation are relevant for free cash flow, we should use the depreciation expense that the firm will use for tax purposed in our free cash flow forecasts.
• B) A firm generally identifies its marginal tax rate by determining the tax bracket that it falls into based on its overall level of pre-tax income.
• C) Free Cash Flow = (Revenues - Costs) × (1 - τ_c) - Capital Expenditures - ΔNWC + τ_c × Depreciation.
• D) Net working capital is the difference between current liabilities and current assets.

---

Definitions:

Marginal Tax Rate

The tax rate that applies to the last dollar of the taxpayer's income, indicating the rate of tax on any additional income earned.

Fixed Cost

Expenses that do not change with the volume of production or sales, such as rent, salaries, and insurance.

Variable Costs

Costs that move in parallel with the rate of goods or services output.

Sensitivity Analysis

The study of how the variation in the output of a model can be attributed to different variations in the inputs of the model, used to predict the impact of changes in economic variables.