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 […]
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, […]
When current assets exceed current liabilities, a firm has negative net working capital. Indicate whether the statement is true or false ANSWER FALSE
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 […]
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 […]
Fully depreciated assets ________ , and so any proceeds from sale at disposal are taxable gains. A) always have a market value of zero B) have a positive book value C) have a negative market value D) have a book value of zero ANSWER Answer: D
Under the Securities Exchange Act of 1934, Congress created the Securities and Exchange Commission (the ‘SEC’). The SEC’s mission is to administer federal securities laws and issue rules and regulations to provide protection for investors and to ensure that the securities markets are fair and honest. This is accomplished primarily by: a. creating a national […]
Net working capital can be defined as the portion of a firm’s current assets financed with long-term funds. Indicate whether the statement is true or false ANSWER FALSE
The tax rules for depreciation recapture are much more ________ than a simplified approach for disposal. A) basic B) complicated C) easy D) shortened ANSWER Answer: B
The current book value of an asset serves as the basis for determining the gain or loss at disposal. Indicate whether the statement is true or false. ANSWER Answer: TRUE
