A firm is selling an old asset below book value in a replacement decision. As the firm's tax rate is raised, the net cash outflow (purchase price less proceeds from the sale of the old asset) would:

Question

Quizplus · Accepted Answer

When a firm sells an asset below its book value, it incurs a loss. As the tax rate increases, the tax shield from this loss increases, reducing the net cash outflow.

A Firm Is Selling an Old Asset Below Book Value