Yes, the cash flows of selling an investment should factor in the tax impact from the sale. This is because paying taxes on profits means handing up cash to the government. Both cash inflows and outflows should be taken into consideration if one is to arrive at an accurate accounting of the profits made from the sale of an investment. This is so as the company’s cash flow will inevitably decrease due to the sale’s tax consequences. The expected profit of the business cannot be accurately predicted without factoring in the tax ramifications of selling the venture (Reimers, 2011). If stakeholders in a company want to know whether selling an investment is a good idea from a cash flow perspective, they need to know how much money will be made once taxes are taken out.
Yes, I contend that dividends and interest should be factored into the cash flows from financing endeavors. This is because dividends, while not assured, will be paid out in the likelihood that the firm will have a successful year. Since interest payments and dividends received can affect net income, they may be considered operating cash flows. When a company’s results are consistently beyond projections, the management will begin issuing dividends (Yeo, 2018). Therefore, it makes the most sense to include interest and dividend income in operating activities because it is directly related to current-year operating profits. Cash flow from investing operations of a firm comprises dividend and interest income generated from the company’s investments. Cash flows from interest and dividends can be categorized as operational, investing, or financing as long as the categorization is maintained from one period to the next.
References
Reimers, J. (2011). Financial accounting: A business process approach (3rd ed.). Pearson.
Yeo, H. J. (2018). Role of free cash flows in making investment and dividend decisions: The case of the shipping industry. The Asian Journal of Shipping and Logistics, 34(2), 113-118. Web.