The firm's ____________ is used to calculate NOPAT because the profits from a project are assumed to be incremental to the firm.

Question

Quizplus · Accepted Answer

NOPAT (Net Operating Profit After Taxes) is calculated by subtracting the taxes from EBIT (Earnings Before Interest and Taxes). The tax rate that should be used is the marginal tax rate because it reflects the actual percentage of income that will be paid in taxes on the incremental income from the project. The average tax rate and lowest marginal tax rate are not appropriate for this calculation.

The Firm's ____________ Is Used to Calculate NOPAT Because the Profits