Which of the following concerning deferred taxes classified as nonoperating are true?
I.They will not be included in a discounted free cash flow (FCF )valuation.
II.They can be valued as part of their corresponding accounts (as in the case of pensions).
III.They can be valued separately (as in the case of net operating loss carryforwards).
IV.They can be ignored as accounting conventions (as in the case of nondeductible amortization).

Question

Quizplus · Accepted Answer

Deferred taxes, whether classified as nonoperating or not, can indeed be treated in various ways in financial analysis and valuation. They might not be included in a discounted free cash flow valuation because they represent future tax effects that are not directly related to the operational cash flows. They can be valued as part of their corresponding accounts, such as pensions, where the deferred tax implications are integrated into the valuation of these liabilities or assets. They can also be valued separately, as in the case of net operating loss carryforwards, where the deferred tax asset created by these carryforwards is evaluated on its own merits. Lastly, certain deferred tax items might be ignored in valuation to the extent that they represent accounting conventions without cash flow impact, such as nondeductible amortization.

Which of the Following Concerning Deferred Taxes Classified as Nonoperating