Which of the following statements is true regarding the correct discount rate to use when discounting a firm's expected tax obligations.
A) Tax obligations should be discounted separately using the risk-free rate of interest since management has no control over them.
B) Tax obligations should usually be discounted separately using the firm's weighted average cost of capital, WACC.
C) Tax obligations should be discounted using the firm's overall cost of capital,
, since they are risky and are positively correlated with the firm's return, regardless of the
Financing method used.
D) Tax obligations should be discounted with the cash flows from debt obligations at the expected rate of return on debt.
Correct Answer:
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