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CFP Certified Financial Planner Test Prep

Category - Foundation

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The IRA has announced a reduction in tax rates. How will this change the NPM ratio of a company?

It will increase
It will decrease
It will have no effect
There is not enough information to answer this question

Explanation

Answer: B - The lowering tax rates will decrease the company's NPM ration.

Taxes are deducted from gross profit to calculate net profit. Decreasing tax rates will decrease tax expenses, and the rediced expenses will improve the NPM ratio.

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