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Suppose you sell a fixed asset for $109,000 when its book value is $129,000. If your company’s marginal tax rate is 21 percent, what will be the effect on cash flows of this sale (i.e., what will b

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter22: Providing And Obtaining Credit

Section: Chapter Questions

Problem 14MC

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Concept explainers

Conversion Cycle

Conversion cycle is also known as cash cycle or net operating cycle. Conversion cycle refers to how much time a company takes to turn its investments which is done from stock or any other financial resources into cash flows from sales.

Question

Suppose you sell a fixed asset for $109,000 when its book value is $129,000. If your company’s marginal tax rate is 21 percent, what will be the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale)? (Enter your answer as a whole number.)

Definition Definition Net amount of cash that an entity receives and expends over the course of a given period. For a business to continue operating, positive cash flows are required, and they are also necessary to produce value for investors. Investors in particular prefer to see growing cash flows even after capital expenditures have been paid for (which is known as free cash flow).

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