Answer:
If the effective tax rate increases then the net savings coming from investments will get lowered as a result the investment will have higher payback period (The increase in effective tax rate would lower demand of the product which means there is decline in net saving arising from the sale of the product). Likewise this decrease in annual net savings will also decrease the internal rate of return which shows that their are increased chances of project rejections. The NPV method is based on cash flows and relevant costing just like IRR and payback method but the only difference is that it assumes that the cash earned would be reinvested at cost of capital. The NPV will also decrease due to increased effective tax rate.
The government often plays some key roles in the economy. Redistributing income, providing a structure and promoting stability are the role of government.
Role of government
The government plays some key roles which are;
- They Provide legal structure.
- They are known to Redistribute income.
- Reallocating resources.
- They Promote stability.
The redistribution of income is known to be the distribution carried out again or anew.
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Such a person would be making an intuitive decision.
