Effective tax rates One measure of the effective tax rate is the difference between the IRRs of pretax and after-tax cash flows, divided by the pretax
In this case, the effective rate equals the statutory rate.
- a) Calculate the effective tax rate for the guano project in Section 6-3.
- b) How does the effective rate depend on the tax
depreciation schedule? On the inflation rate? - c) Consider a project where all of the up-front investment is treated as an expense for tax purposes. Does this definition of the effective tax rate make sense for such a project?
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Principles of Corporate Finance
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