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Question
In estimating a firm’s cost of capital and value, which of the following is most accurate concerning marginal tax rates on nonoperating items?
a) Both GAAP and the IFRS require that marginal tax rates on nonoperating items be reported, so it not a problem.
b) Marginal tax rates on nonoperating items are usually not reported, but in most cases an analyst can ignore them because they are so small.
c) Marginal tax rates on nonoperating items are usually not reported, and an analyst will have to make an assumption about the tax jurisdiction in which nonoperating items are held.
d) IFRS requires that marginal tax rates on nonoperating items be reported, and an analyst estimating the value of a company that uses GAAP can use approximations from similar firms using IFRS for such marginal tax rates.
Answer
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