A taxable gain occurs when an asset is sold for more than its book value. For capital budgeting purposes, the taxes on the sale

are treated as a reduction in cash and added to operating cash flow

are treated as a noncash event similar to depreciation

are treated as a reduction in cash and deducted from the book value of the asset

are treated as a reduction in cash and deducted from the taxable gain

are treated as a reduction in cash and are deducted from the sale price