Milton Is Experiencing Cash Flow Problems During the Current Year

question 119

Multiple Choice

Milton is experiencing cash flow problems during the current year.Rather than foreclose on the $120,000 mortgage loan on his principal residence,his bank agrees to reduce the debt to $90,000.Prior to the debt reduction,Milton's total assets were $400,000 and his total liabilities were $390,000.How much income must Milton recognize from the reduction of his bank loan?

• A)- 0 -
• B)$10,000
• C)$20,000
• D)$30,000

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Definitions:

Net Present Value

A method used in capital budgeting to evaluate the profitability of an investment or project, calculated by discounting future cash flows to their present value and subtracting the initial investment cost.

Working Capital

The difference between a company's current assets and current liabilities, indicating its short-term liquidity.

Investment Project

A project undertaken by a company involving significant capital expenditure with the expectation of generating future profits.

Profitability Index

A calculation used to determine the relative profitability of an investment, based on the present value of future cash flows divided by the initial investment cost.