Adam Owns 100% of Banana Company and Has a Basis

question 105

Multiple Choice

Adam owns 100% of Banana Company and has a basis of $60,000 in its stock.The company has earnings and profits of $54,000 and distributes a cash dividend to Adam of $72,000.Adam has a:

• A)Nontaxable distribution of $18,000.
• B)Capital gain of $12,000.
• C)Dividend of $72,000.
• D)Nontaxable distribution of $6,000.

Understand the concepts of cash flows, salvage value, and straight-line depreciation in investment assessment.

Calculate and interpret the accounting rate of return for investment decisions.

Understand and calculate the net present value (NPV) of an investment.

Grasp the importance of the internal rate of return (IRR) and its role in investment decisions.

---

Definitions:

Withdrawing Offer

The action of retracting a proposal or bid before it is accepted, rendering it void.

Promissory Estoppel

A legal principle preventing a party from withdrawing a promise that another party has reasonably and substantially relied on to their detriment.

Consensus

General agreement or harmony among a group of people or the collective judgment, position, and opinion of a group.

Formation Of Contract

The legal process by which an agreement between parties becomes legally enforceable, usually involving offer, acceptance, consideration, and mutual intent.