A firm is considering purchasing an asset that will cost $1 million. Other depreciable costs include $100,000 in installation costs. If the asset is classified in the 3-year class, what is the annual depreciation for each year for this asset using the fixed depreciation percentages given by MACRS? (The percentages are 33.33%, 44.45%, 14.81%, and […]
Firms are able to reduce financing costs or increase the funds available for expansion by maximizing the amount of funds tied up in working capital. Indicate whether the statement is true or false ANSWER TRUE
The advantage of straight-line depreciation over MACRS depreciation is that you can write off ________. A) more of your total capital costs B) your capital costs in fewer years C) a larger percentage of your capital costs earlier D) None of the above ANSWER Answer: D
The advantage of MACRS over straight-line depreciation is that you can write off more of your capital costs in the ________ years. A) middle B) last C) later D) earlier ANSWER Answer: D
A firm is considering purchasing two assets. Asset A will have a useful life of 12 years and cost $4 million; it will have installation costs of $300,000 and a salvage or residual value of $400,000. Asset B will have a useful life of 8 years and cost $3.5 million; it will have installation costs […]
The annual straight-line depreciation expense is the total value (cost plus installation) minus any anticipated salvage value divided by the number of years of service (life) of the machine. Indicate whether the statement is true or false. ANSWER Answer: TRUE
According to the finance literature related to informational asymmetry, one of the most important roles of an investment-banking firm (in terms of assisting a firm in issuing securities to the public) is to vouch for the value of the security, after it has obtained confidential information from the firm’s management about its business strategy. This […]
Termination is the process of “expiring” the cost of a long-term tangible asset over its useful life. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: Depreciation is the process of “expiring” the cost of a long-term tangible asset over its useful life.
Discuss and contrast the three types of loans discussed in the text that use inventory as collateral: floating inventory liens, trust receipt inventory loans, and warehouse receipt loans. What will be an ideal response? ANSWER A floating inventory lien is certainly the easiest for a firm since the lender just takes a lien […]
Working capital refers to a firm’s long-term capital. Indicate whether the statement is true or false ANSWER FALSE
