Which of the following statements is correct regarding NPV calculations?
A) When comparing projects on the basis of their NPVs, you should always discount pre-tax cash flows at the after-tax opportunity cost of capital or discount after-tax cash flows at
The pre-tax opportunity cost of capital. Otherwise, you are double-counting the tax
Effects.
B) When comparing projects on the basis of their NPVs, you can only use pre-tax cash flows and pre-tax opportunity costs of capital if the tax treatment is absolutely symmetric.
C) When comparing projects on the basis of their NPVs, you should either discount pre-tax cash flows at the pre-tax opportunity cost of capital or discount after-tax cash flows using
The after-tax opportunity cost of capital. Both methods will lead you to the correct
Financial decision.
D) Both B and C are correct statements.
Correct Answer:
Verified
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