Consider the following statements about taxes and after-tax cash flows:
I. Capital budgeting analyses should incorporate after-tax cash flows rather than before-tax cash flows.
II. Added company revenues will result in lower taxes for a firm.
III. Operating expenses may actually provide a tax benefit for an organization.
Which of the above statements is (are) correct?

Question

Quizplus · Accepted Answer

I is correct because capital budgeting analyses should indeed use after-tax cash flows to accurately assess the value of a project, taking into account the impact of taxes. III is correct because operating expenses reduce taxable income, thereby providing a tax benefit. II is incorrect because added company revenues increase taxable income, leading to higher taxes, not lower.

Consider the Following Statements About Taxes and After-Tax Cash Flows