Cash-Flow Analysis: If an Existing Asset Is Sold at a Gain

question 72

Multiple Choice

Cash-flow analysis: If an existing asset is sold at a gain, and the gain is taxable, then the after-tax proceeds from this transaction would be equal to:

• A) Net proceeds from the sale plus the after-tax gain on the sale.
• B) Net proceeds from the sale less the after-tax gain on the sale.
• C) Net proceeds from the sale plus the taxes paid on the gain.
• D) Net proceeds from the sale less the taxes paid on the gain.
• E) The pre-tax proceeds plus taxes on the gain.

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Definitions:

Outstanding Accounts

Accounts or invoices that have been billed but not yet paid by customers.

EBIT

Earnings Before Interest and Taxes, a financial metric indicating a company's operating profitability by excluding interest and taxes from earnings.

Interest Expense

The cost incurred by an entity for borrowed funds; interest expenses are a non-operational cost affecting the company’s net income.

Times Interest Earned Ratio

A financial metric used to evaluate a company's ability to meet its debt obligations by comparing its income before interest and taxes to its interest expenses.