Book value is the original cost of an asset plus the accumulated depreciation. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: Book value is the original cost of the asset MINUS the accumulated depreciation.
Date: September 19th, 2020
Fully depreciated assets have a positive book value, and so any proceeds from sale at disposal are taxable gains. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: Fully depreciated assets have A BOOK VALUE OF ZERO, and so any proceeds from sale at disposal are taxable gains.
Date: September 19th, 2020
The asymmetric information explanation of capital structure suggests that firms will issue new debt only when the managers believe the firm’s stock is overvalued; as a result, issuing new debt is considered a negative signal that will result in a decline in share price. Indicate whether the statement is true or false ANSWER […]
Date: September 19th, 2020
If the selling price of an asset at disposal is less than its book value, then the after-tax cash flow is the selling price minus the tax on the gain. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: If the selling price of an asset at disposal is GREATER […]
Date: September 19th, 2020
Eastern Inc. purchases a machine for $70,000. This machine qualifies as a five-year recovery asset under MACRS with the fixed depreciation percentages as follows: year 1 = 20.00%; year 2 = 32.00%; year 3 = 19.20%; year 4 = 11.52%. The firm has a tax rate of 40%. If the machine is sold at the […]
Date: September 19th, 2020
Southwest Co. purchases an asset for $60,000. This asset qualifies as a seven-year recovery asset under MACRS. Winston has a tax rate of 30%. The seven-year fixed depreciation percentages for years 1, 2, 3, 4, 5, and 6 are 14.29%, 24.49%, 17.49%, 12.49%, 8.93%, and 8.93%, respectively. If the asset is sold at the end […]
Date: September 19th, 2020
The leading piece of theoretical research in corporate finance is Myers and Majluf (1984). They showed that when there is information asymmetry between the market and managers, a pecking order emerges in terms of how the firm should obtain funds for capital investments. Specifically, a firm would prefer to use: a. debt, then retained earnings, […]
Date: September 19th, 2020
When current assets exceed current liabilities, a firm has negative net working capital. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
Northern Co. purchases an asset for $50,000. This asset qualifies as a five-year recovery asset under MACRS, with the fixed depreciation percentages as follows: year 1 = 20.00%; year 2 = 32.00%; year 3 = 19.20%; year 4 = 11.52%. Northern has a tax rate of 35%. If the asset is sold at the end […]
Date: September 19th, 2020
Southern Inc. purchases an asset for $150,000. This asset qualifies as a five-year recovery asset under MACRS with the fixed depreciation percentages as follows: year 1 = 20.00%; year 2 = 32.00%; year 3 = 19.20%; year 4 = 11.52%. Southern has a tax rate of 35%. If the asset is sold at the end […]
Date: September 19th, 2020
