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Found of Taxation

Chapter 3: Taxes as Transaction Costs

TermDefinition
net cash flow the difference between cash received and cash disbursed
time value of money a dollar available today is worth more than a dollar available tomorrow because the current dollar can be invested to start earning interest immediately
net present value (NPV) the sum of the present values of all cash inflows and outflows relating to a transaction
PV equation PV($)=1/(1+r)n (n) is an exponent
annuity a cash flow consisting of a constant dollar amount for a specific number of time periods
annuity equation 1/r - 1/(r(1+r)n (n) is an exponent
tax cost an increase in tax liability for any period resulting from a transaction
tax savings a decrease in tax liability for any period resulting from a transaction
deduction an offset or subtraction in the calculation of taxable income
private letter ruling (PLR) the IRS’s written response to a taxpayer’s inquiry as to how the tax law applies to a proposed transaction
market a forum for commercial interaction between two or more parties for the purpose of exchanging goods or services
private market a market in which the parties deal directly with each other and can customize the terms of their agreement to meet their respective objectives
arm's-length transaction a transaction occurring between unrelated parties who are dealing in their own self-interest
public markets a market in which the parties deal indirectly through an intermediary such as a broker or a financial institution
related part transactions a transaction between parties who share a common economic interest or objective and who may not be dealing at arm’s length
Created by: ryanriggs18
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