All of the following are true about the marginal tax rate for the firm except for
A. The marginal tax rate in the U.S. is usually about 40%.
B. The effective tax rate is usually less than the marginal tax rate.
C. Once tax credits have been used and the ability to further defer taxes exhausted, the effective rate can exceed the marginal rate at some point in the future.
D. It is critical to use the effective tax rate in calculating after-tax operating income in perpetuity.
E. It is critical to use the marginal rate in calculating after-tax operating income in perpetuity.
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The calculation of free cash flow to equity includes all of the following except for
A. Operating income
B. Preferred dividends
Change in working capital
D. Gross plant and equipment spending
E. Principal repayments
The calculation of free cash flow to the firm includes all of the following except for
A. Net income
B. Marginal tax rate
Change in working capital
D. Gross plant and equipment spending
E. Depreciation
The cost of capital reflects all of the following except for
A. Cost of equity
B. The firm's beta
C. The book value of the firm's debt
D. The after-tax cost of interest paid by the firm
E. The risk free rate of return
Which of the following is not true about the variable growth valuation model?
Assumes a high growth period followed by a stable growth period.
B. Assumes that the discount rate during the high and stable growth periods is the same.
C. Is used primarily to evaluate firms in high growth industries.
D. Involves the calculation of a terminal value.
E. The terminal value often comprises a substantial percentage of the total present value of the firm.
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