Chapter 18: Income Taxes and Financial Decisions
Learning Objectives
At the completion of this chapter the student should be able to:
• Explain under what circumstances income taxes affect the financial decisions.
Instructional Hints
• Help the students understand that spending money to save taxes (for example, paying
interest so that you can get an interest deduction) is seldom a wise decision. Business
Activities
• Divide the students into an even number of groups and pair up the groups. Assign each
group a different set of alternatives to select from and have one of the pair solve it without
Instruction Resources
• The figures from this chapter in electronic format and PowerPoint slides can be found at
the instructor’s website.
Solutions to the Textbook Problems
1. They defer the tax savings associated with the losses to future years when their net present
value is less.
2. They can move the company from one tax bracket to another and change the amount of taxes
paid on the alternatives.
3. It defers the tax savings associated with the purchase of equipment or other capital assets to
future years when its net present value is less.
4. They reduce the tax rate paid on assets which are held for longer periods of time.