Wk-4; Q1: A firm uses a single discount rate to compute the NPV of all its potential capital budgeting projects‚ even though the projects have a wide range of nondiversifiable risk. The firm then undertakes all those projects that appear to have positive NPVs. Briefly explain why such a firm would tend to become riskier over time. Let’s start with some definitions and simple examples according to authors‚ Emery‚ Finnerty and Stowe: “Time Value of Money: The value that a capital budgeting project
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the tertiary sector would use fixed assets or non-current assets. Fixed assets can vary from buildings and premises to cars or the equipment used. Whatever the case proper management of fixed assets is needed. By this we mean providing proper depreciation‚ spending on maintenance and repair as well as adjusting the accounts clearly and accurately to show the changes in fixed assets. This project looks at the procedures involved in acquiring fixed assets and the disposal of fixed. It also uses accounting
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of Piper Rental Agency on March 31 of the current year includes the following selected accounts before adjusting entries have been prepared. Debit Credit Prepaid Insurance $ 3‚600 Supplies 2‚800 Equipment 25‚000 Accumulated Depreciation—Equip $ 8‚400 Notes Payable 20‚000 Unearned Rent 9‚900 Rent Revenue 60‚000 Interest Expense –0– Wages Expense 14‚000 An analysis of the accounts shows the following. 1. The equipment depreciates $400
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………………………………………………………… Sales taxes ……………………………………………………………… Installation of furniture ………………………………………………… Cost of repair furniture damaged during installation …………………… $11‚000 375 550 75 400 Instructions a. Compute depreciation expense for the years 2011 through 2014 under each depreciation method listed below: 1. Straight-line‚ with fractional years rounded to the nearest whole month. 2. 200 percent declining-balance‚ using the half-year convention. 3. 150 percent declining-balance‚ using the
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private limited liability company that operates a single cruise ship. The ship was acquired on 1 October 1996. Details of the cost of the ship’s components and their estimated useful lives are: component original cost ($million) depreciation basis Ship’s fabric (hull‚ decks etc) 300 25 years straight-line Cabins and entertainment area fittings 150 12 years straight-line Propulsion system 100
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repayment 10% interest rate Accounting at McCloud Winery Accounting for the loan See the related excel file Accounting at McCloud Winery 3: The land and the grapevines The vineyard is certainly an asset Cost of this asset? Depreciation? Accounting at McCloud Winery Cost (initial value) of an assets You can include in the cost (initial value) of an assets all the costs necessary to put the asset into its productive use So‚ in this case‚ it can be argued that all
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Financial Statement Analysis K R Subramanyam John J Wild McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies‚ Inc. All rights reserved. 4-2 Analyzing Investing Activities 4 CHAPTER 4-3 Current Asset Introduction Classification Current (Short-term) Assets Resources or claims to resources that are expected to be sold‚ collected‚ or used within one year or the operating cycle‚ whichever is longer. Noncurrent (Longterm) Assets Resources or claims to resources
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a. Delta Airlines Depreciation Method Depreciation Method Salvage Value For every $100 mil Depreciated Annual Depreciation Prior to 1986 Straight-line‚ 10 years 10% 100-(.1*100)=90 90/10=9 $9 mil 1968 – 1993 Straight-line‚ 15 years 10% 100-(.1*100)=90 90/15=6 $6 mil After 1993 Straight-line‚ 20 years 5% 100-(.05*100)=95 95/20=4.75 $4.75 mil b. Singapore Airlines Depreciation Method Depreciation Method Salvage Value For every $100 mil Depreciated Annual Depreciation Prior to 1989 Straight-line
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Chapter 7 Fundamentals of Capital Budgeting 7-1. Pisa Pizza‚ a seller of frozen pizza‚ is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no trans fats. The firm expects that sales of the new pizza will be $20 million per year. While many of these sales will be to new customers‚ Pisa Pizza estimates that 40% will come from customers who switch to the new‚ healthier pizza instead of buying the original version. a. b. Assume customers will spend
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tangible business asset. In 2013 and 2014‚ it deducted $3‚140 and $7‚200 depreciation with respect to the asset. Firm A’s marginal tax rate in both years was 35 percent. Compute Firm A’s adjusted basis in the asset at the end of each year. (part b) a) 2013: $39‚660; 2014: $29‚320 b) 2013: $46‚860; 2014: $39‚660 Initial cost basis$50‚000 Year 1 depreciation (3‚140) Adjusted basis at end of 2013$46‚860 Year 2 depreciation (7‚200) Adjusted basis at end of 2014$39‚660 c) 2013: $50‚000; 2014:
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