Brad Owns 100 Shares of AAA Corporation with a Basis

question 42

Multiple Choice

Brad owns 100 shares of AAA Corporation with a basis of $6,000 and a FMV of $24,000.Brad receives 15 stock rights as a nontaxable distribution with a total FMV of $6,000.Brad allows the stock rights to expire.Brad's loss recognized and the basis of the original 100 shares after expiration of the stock rights is

• A)$0 and $4,800.
• B)$0 and $6,000.
• C)($1,200)and $4,800.
• D)($1,200)and $6,000.

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Definitions:

Cash Flows

The total amount of money being transferred into and out of a business, especially regarding liquidity.

Net Present Value

A technique employed in the process of capital allocation for evaluating the profitability of a project or investment through determining the net present value of cash inflows and outflows.

Mutually Exclusive Projects

Investment projects where the acceptance of one project prevents the acceptance of another due to resource constraints or other factors.

Net Present Values

The gap between the present value of cash entering and the present value of cash exiting over a certain period, used within capital budgeting to gauge the financial viability of an investment.