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21.     Two common methods for comparing alternatives are (1) the total project approach and
     (2) the conversion approach.
                    

22.     The total project approach can be used to compare any number of projects.
     

23.     The differential approach can be used to compare any number of projects.
     
24.     Generally, the hardest part of making capital-budgeting decisions is predicting the relevant cash flows.
     


25.      The cash outflow for the purchase of equipment is an example of an operating cash flow.
     

26.     Errors in forecasting terminal disposal values are usually not crucial because the present value of these flows is small.


27.     Primarily, working capital = receivables + inventories + payables.
     
28.     The only relevant cash flows are those that will differ among alternatives.
     
29.     Depreciation and book values are relevant operating cash flows.
     
30.     A reduction in a cash outflow is not treated the same was as a cash inflow.
     


31.     U.S. corporations are required to use the same method of calculating depreciation on both their income tax return and their annual published financial statements.
               

32.     The marginal income tax rate is the tax rate paid on additional amounts of taxable income.
     


33.     When making capital budgeting decisions, the manager should consider the marginal tax rate, not the average tax rate that applies to the company.
     

34.     Federal income taxes are based on the value of a company’s assets.
     
35.     Most of the depreciation taken on an asset occurs at the end of its life when using accelerated depreciation.
     
36.     A depreciation deduction lowers a company’s tax liability.
     
37.     The later a company takes the depreciation on its assets, the greater the present value of the income tax savings.
     
38.     A company will experience the same total tax savings over the life of an asset, regardless of the method of depreciation used.
     

39.     A good rule of thumb in tax planning is to recognize taxable income sooner rather than later.
     
40.     Tax avoidance is illegally reducing taxes by recording fictitious deductions or failing to report income.
     

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