Case 1441: An example of this is municipal bond interest income, which is recognized as part of book income but not taxable income. ii. Temporary tax difference - this is the difference between the carrying value of an asset or liability on the company's balance sheet and the asset or liability's taxable base. There are two types of temporary tax differences: deductible or taxable. An example of a temporary difference is depreciation, which is accounted for differently on book income versus taxable income. iii. Statutory tax rate - this is the rate imposed by the state or country that is responsible for taxing the entities. iv. Effective tax rate - this is the average tax rate that the entity will pay on their pre tax income. Deferred Income Taxes 51 a. Book income is the same as financial income, which is revenues minus expenses. Zagg's book income for 2012 is $14,505. This differs from taxable income due to temporary taxable differences, permanent taxable differences, and loss carryforwards and carrybacks. b. In n words, define the following terms: i. Permanent tax difference - this is a difference between book income and taxable income that will never be eliminated. c. These deferred taxes are actually incurred during the period and therefore should be included in total income tax expense to satisfy the matching principle. d. Deferred tax assets represent a future positive cash inflow because of overpaid taxes in the present, while a deferred tax liability represents a tax payment that the 52 company is obligated to make in the future. An example of a deferred tax asset is the carry-over of losses; an example of a deferred tax liability is depreciation differences for taxable income and book income. e. The deferred income tax valuation allowance is a provision relating to the deferred tax asset account to ensure that the deferred tax asset is not overstated. For Zagg, it is listed in Note 8 in table 3. An allowance should be recorded when there is potential that the deferred tax asset might be overstated. f. Consider the information disclosed in Note 8 - Income Taxes to answer the following questions: i. ii. iii. ETR = Tax expense / Pre-tax Income ETR = $9,393 / 23,898 = 39.31% The permanent differences between book income and taxable income make up the 4.31% difference between the effective tax rate and the statutory rate. iv. The current portion of deferred income tax assets is listed under current assets at $6,912, while the non-current portion is listed as an asset on the balance sheet at $6,596.

41. Is it true that if a company does not distribute dividends then the cost of its equity is zero?

42. What is the influence of auto portfolio in the quotation of the shares?

43. Why does a Split?

44. The National Company responsible for the company where I work has recently

published a document stating that the levered beta of the sector of energy

transportation is 0.471870073 (yes, 9 decimals). They obtained this number by

considering the betas in the sector, ranging between -0.24 and 1.16. What is the point

of being so precise with the betas? Does it make any sense to apply the same beta to

all the companies in a sector?

45. What is the Capital Cash Flow? Is it the same with Free Cash Flow?

46. Is there any consensus between the main authors in finance regarding the market risk

premium?

4 - IESE Business School-University of Navarra

47. How can we calculate a company's cost of capital in emerging nations, especially

when there is no state bond which we could take as a reference?

48. How can an industrial company inflate the value of its inventory so as to reduce net

income and the taxes is has to pay that year?

49. According to the valuation method based on tax shields, the value of the company

(Vl) is the value of the unleveraged company (Vu) plus the value of tax shields (VTS).

Therefore, the higher the interest, the higher the VTS. So, does the value of the

company increase if I call my bank and tell them to charge me double the interest?

50. I cannot seem to start a valuation. In order to calculate E + D = VA (FCF; WACC) I need

the WACC and in order to calculate the WACC I need D and E. Where should I start?

51. Does the book value of the debt always coincide with its market value?

52. Is the Free Cash Flow (FCF) the sum of the equity cash flow and the debt cash flow?

Answer rating: 100% (QA)

41 No it is not true that if a company does not distribute dividends the cost of its equity is zero The cost of equity represents the return required by investors for holding the companys stock and it ... View the full answer