Tax and Investment Performance 1. What determines the relationship between taxable income and before tax cash flow? Illustrate your answer with a numerical example. How might this relationship impact decisions to sell or to refinance? 2. Dollars of depreciation expense taken during the holding period increase the capital gain at sale by an equal number of dollars. Given this, what is the advantage, if any, of sheltering cash flow from tax during the holding period? Also, react to this statement: "One of the things that make real estate a relatively superior investment is the opportunity for tax shelter." 3. A broker is heard to comment: "One of the advantages of real estate investing is that the interest paid on a mortgage loan creates a tax shelter." Comment, including a numerical example to support your answer. 4. Investors sometimes use one-year measures of return to evaluate an investment. Is this good practice? Explain your answer.