Question

1.

Because of the time value of money, a company would prefer to receive a payment due to them:

Select one:

A. As early as possible

B. As late as possible

C. It does not make a difference when the payment is received

D. It depends on the discount rate

E. None of the above

2.

Which of the following items are impacted by taxes when considering Net Present Value?

Select one:

A. Cash receipts from future sales

B. Depreciation expense

C. Cash outlays for future expenses

D. Cash receipts for disposal of fully-depreciated assets

E. All of the above

3.

Which of the following items are impacted by taxes when considering Net Present Value?

Select one:

A. Cash receipts from future sales

B. Depreciation expense

C. Cash outlays for future expenses

D. Cash receipts for disposal of fully-depreciated assets

E. All of the above

Answer 1

1. According to the concept of time value of money, $1 today will be worth somewhat more than $1 an year later. So, suppose if the company has a receivable of $100 and it has the option of whether to receive the payment today or an year later, then the Company would choose receiving payment today because $100 received today will earn it the prevalant interest rate and will be worth more than $100 an year later.

So, the correct answer is -

(A) As early as possible

2. Cash receipts from Future Sales will result in additional tax liability for the company and thus is impacted by tax.

Depreciation expense is an allowable deduction while computing taxable profits and hence helps in tax savings. Thus, depreciation expense is also impacted by tax.

Cash outlay for Future Expenses results in reduction of tax liability. Thus, it is also impacted by tax.

When a fully depreciated asset is sold, then the entire receipt is taxable income and will lead to increase in tax liability. Thus, it is also impacted by tax.

Therefore, the correct answer is -

(E) All of the above

3. Cash receipts from Future Sales will result in additional tax liability for the company and thus is impacted by tax.

Depreciation expense is an allowable deduction while computing taxable profits and hence helps in tax savings. Thus, depreciation expense is also impacted by tax.

Cash outlay for Future Expenses results in reduction of tax liability. Thus, it is also impacted by tax.

When a fully depreciated asset is sold, then the entire receipt is taxable income and will lead to increase in tax liability. Thus, it is also impacted by tax.

Therefore, the correct answer is -

(E) All of the above