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Tax 2012 Ch. 3

Principles of Taxation for Business and Investment Planning, Ch. 3

QuestionAnswer
What is the ultimate objective when making business decisions? To maximize the value of the business by maximizing cash flows.
The ultimate decision when making business decisions should be to ____________ ______ ________. Maximize cash flows
Transactions rarely have multiple cash flow “events” that occur at different times. True or False? False
As the discount rate increases, present value (decreases/increases). decreases
As risk increases, the discount rate (decreases/increases). increases
You should always use the same discount rate to evaluate different planning schemes. True or False? False
When tax cost increases, we consider this to be a cash (inflow/outflow). outflow
When the tax cost decreases, this is considered a cash (inflow/outflow). inflow
Tax savings occur when the tax cost (increases/decreases). decreases
If a transaction results in an increase in any tax for any period, the cash outflow is called a ____ ________. tax cost
If a transaction results in a decrease in any tax for any period, the cash inflow is called a ______ ________. tax savings
The after-tax cost of a deductible expense (increases/decreases) as the taxpayer’s marginal income tax rate (increases/decreases). decreases, increases
What three tax-related uncertainties add complexity to the tax planning process? 1) Audit risk, 2) Tax law uncertainty, and 3) Marginal rate uncertainty.
Firms can change the tax consequences by changing the legal or financial __________. structures
Tax consequences of business transactions depend on the ________ and ________ structure of the transaction. legal, financial
The extent to which managers can control tax consequences of transactions depends on the nature of the _________ in which the transaction occurs. market
What are the three types of markets? Private, public, and related party.
In a private market, both parties can customize the transaction to ____________ the ________ tax cost. minimize, aggregate
In a public market, the parties (do/do not) engage in direct negation. do not
In a public market, tax planning is two-sided. True or False? False. Tax planning is one-sided in a public market.
In a _______ market, parties work together to minimize their aggregate tax. private
In a ________ market, tax savings can be shared. private
An example of a public market is the stock market. True or False? True
A fictitious market is also known as a ________ _______ transaction. related party
In business, looking out for yourself is known as __________ ___ _______ _________. dealing at arms length.
Dealing at arms length means that you are looking out for the interests of others. True or False? False
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