The net cash flow from the sale of an asset will exceed the asset's sale price when a firm has positive taxable income and the asset's book value exceeds its market value.

Question

Quizplus · Accepted Answer

When the asset's book value exceeds its market value, the firm incurs a loss on the sale, which can be used to offset taxable income, resulting in tax savings. This tax benefit increases the net cash flow from the sale beyond the sale price.

The Net Cash Flow from the Sale of an Asset