Topic 2: Part 4 Flashcards
1
Q
Why do taxes have a distorting impact on investment decisions?
A
Projects may no longer be profitable after tax
-only profits are taxed
2
Q
How does WDA mitigate distortions?
A
WDA compensates companies for undertaking investments involving capital expenditure.
3
Q
Why is inflation important to account for?
A
Inflation changes the amount of revenue we generate.
4
Q
Fisher-Separation
A
A firm’s choice of investments are separate from it’s owners attitudes towards the investments.
Firm maximises Present Value and shareholders use capital market to adjust their consumption given the resulting payments stream.
