Why Does Hedging Reduce the Firm's Expected Taxes and Increase

question 24

Multiple Choice

Why does hedging reduce the firm's expected taxes and increase its value?

• A) It creates a tax-loss carry-forward.
• B) It separates production costs from headquarters' costs.
• C) It provides the firm with additional expenses reducing taxable income.
• D) It allows the firm to shift income across different tax jurisdictions in the world.

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Definitions:

Credit Memo

A document issued by a seller to a buyer, reducing the amount owed by the buyer to the seller, typically due to a return or an overcharge.

Gross Profit

Revenue minus the cost of goods sold (COGS), representing the profit a company makes after deducting the costs associated with making and selling its products.

Discount Period

A set time period during which a discount is available, or the period between the issuance of a bill and its payment due date where a discount may be taken for early payment.

Credit Memo

A document issued by a seller to a buyer, reducing the amount the buyer owes to the seller under the terms of an existing invoice.