Which of the following statements about income taxes and capital budgeting decisions is/are correct?
i. Income taxes influence the amount of cash inflows and outflows in capital budgeting decisions.
ii. Income taxes are not cash flows.
iii. The effect of income taxes is not necessarily in the same year as the cash flow.

Question

Quizplus · Accepted Answer

Statement i is true since income taxes can affect the amount of cash inflows and outflows through tax deductions, credits, and the tax rate itself. Statement ii is true as income taxes are not considered cash flows, but instead represent a reduction in cash inflows. Statement iii is true since the effect of income taxes may occur in different years than the actual cash flow. Therefore, both statements i and iii are correct.

Which of the Following Statements About Income Taxes and Capital