Suppose You Sell a Fixed Asset for $75,000 When Its

question 95

Multiple Choice

Suppose you sell a fixed asset for $75,000 when its book value is $80,000. If your company's marginal tax rate is 21 percent, what will be the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale) ?

• A) $5,000
• B) $48,750
• C) $76,050
• D) $75,000

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Definitions:

Risk-Free Rate

The hypothesized return rate of a risk-less investment, often exemplified by the yield found in government securities.

Market Risk Premium

The increased earnings expected by an investor for choosing a risky market portfolio over assets with no risk.

Preferred Stock

A class of ownership in a corporation that has a higher claim on assets and earnings than common stock, often with fixed dividends.

Selling

The process or act of offering goods or services in exchange for money or other compensation.