As a Result of a Divorce Agreement Executed in 2018

question 1181

Multiple Choice

As a result of a divorce agreement executed in 2018, Michael pays Judy $75,000 in year one and $25,000 per year in subsequent years. How much of the $75,000 in year one is properly characterized as alimony and will not be recaptured later?

• A) $35,000
• B) $40,000
• C) $75,000
• D) $25,000

---

Definitions:

Payback Period

The time it takes for an investment to generate an amount of income or cash flows to recover the initial capital outlay.

Incremental Cost Approach

A method used to analyze the financial impact of additional costs incurred when making business decisions.

Discount Rate

In discounted cash flow (DCF) analysis, this rate is applied to calculate the present value of anticipated cash flows.

Working Capital

The difference between a company's current assets and current liabilities, indicating the short-term financial health and operational efficiency.