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Found of Taxation
Chapter 3: Taxes as Transaction Costs
| Term | Definition |
|---|---|
| net cash flow | the difference between cash received and cash disbursed |
| time value of money | a dollar available today is worth more than a dollar available tomorrow because the current dollar can be invested to start earning interest immediately |
| net present value (NPV) | the sum of the present values of all cash inflows and outflows relating to a transaction |
| PV equation | PV($)=1/(1+r)n (n) is an exponent |
| annuity | a cash flow consisting of a constant dollar amount for a specific number of time periods |
| annuity equation | 1/r - 1/(r(1+r)n (n) is an exponent |
| tax cost | an increase in tax liability for any period resulting from a transaction |
| tax savings | a decrease in tax liability for any period resulting from a transaction |
| deduction | an offset or subtraction in the calculation of taxable income |
| private letter ruling (PLR) | the IRS’s written response to a taxpayer’s inquiry as to how the tax law applies to a proposed transaction |
| market | a forum for commercial interaction between two or more parties for the purpose of exchanging goods or services |
| private market | a market in which the parties deal directly with each other and can customize the terms of their agreement to meet their respective objectives |
| arm's-length transaction | a transaction occurring between unrelated parties who are dealing in their own self-interest |
| public markets | a market in which the parties deal indirectly through an intermediary such as a broker or a financial institution |
| related part transactions | a transaction between parties who share a common economic interest or objective and who may not be dealing at arm’s length |
Created by:
ryanriggs18
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