Income tax effects are associated with all the following except:
A) Disposition (i.e., sale) of an existing asset at an amount different from the asset's net book value (NBV).
B) Required increase in net working capital associated with an investment project.
C) Sale of an investment asset at the end of the asset's useful life.
D) Effect of depreciation expense associated with an investment project.
E) Annual net benefits (e.g., reduction in operating expenses) associated with a proposed investment.

Question

Quizplus · Accepted Answer

Income tax effects are not directly associated with the required increase in net working capital, which is a cash flow item in capital budgeting analysis. Rather, income tax effects are related to items such as taxable income, taxable gain or loss, tax deductions, and tax credits, which are based on accounting and tax rules and regulations. The other choices listed all have income tax effects: A) disposition of an asset can generate a taxable gain or loss; C) sale of an investment asset can result in capital gains tax; D) depreciation expense affects taxable income; and E) net benefits can affect taxable income through changes in operating expenses.

Income Tax Effects Are Associated with All the Following Except