When analyzing the cash flows from a new project proposal, a company should always use its marginal tax rate.

Question

Quizplus · Accepted Answer

The marginal tax rate reflects the additional tax a company would pay on its next dollar of income. When analyzing the cash flows from a new project proposal, the company should consider the changes in its tax liability due to the project. Therefore, the company should use its marginal tax rate rather than its average tax rate, which reflects the total tax paid over all income levels.

When Analyzing the Cash Flows from a New Project Proposal