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arushi_13
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Posted: 01 Feb 2009 at 18:22 \| IP Logged

Which of the following changes would result in the highest PV for a series of CFs?

a. A $100 decrease in taxes each for four years
b. A $100 increase in disposal value at the end of 4 yrs.

Why a is the right answer and NOT b?

Please advice... Thanks a lot.

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r.raza
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Posted: 01 Feb 2009 at 21:40 \| IP Logged

Yes, A is correct because there is reduction in taxes EVERY YEAR which intends to increase in PV and NPV.

B is incorrect because there is a increase in salvage value at the end of the project, which will be included at the end of project. There would be increase in PV & NPV but ratio would be less the option A.

Thats what I think...

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arushi_13
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Posted: 01 Feb 2009 at 22:04 \| IP Logged

Thanks r.raza.

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thehotcorner
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Posted: 04 Feb 2009 at 17:41 \| IP Logged

Also, some questions may try to trick you.

$100 decrease in taxes is better than $100 increase in revenue because with revenue 'you gotta share with the gov't'

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arushi_13
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Posted: 04 Feb 2009 at 18:13 \| IP Logged

Thanks a lot thehotcorner.

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