Chapter 3 Solutions.docx - Chapter 3 Solutions Questions 1 C 2 B 3 C Exercise 1 Exit Price \$ 450,000.00 Less Recondition Costs \$(50,000.00 Less

# Chapter 3 Solutions.docx - Chapter 3 Solutions Questions 1...

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Chapter 3 Solutions: Questions: 1. C 2. B 3. C Exercise 1: Note: Transaction costs aren’t included in the computation of fair value, hence, the commission costs were excluded. Exercise 2: The fair value of the liability should be reported at \$45,000. The similar asset held by Sabado is a level 2 input. Domingo s own pricing model is a level 3 input. Even though Domingo claims that their pricing model is more accurate, level 2 inputs take precedence over level 3 inputs and company estimates. Exercise 3: Beginning of Year N = 20 I = 8 PMT = 10,000 PV = 106,036 Fair Value of the leased asset = \$106,036 Case: Building 39,000 sq. ft. is 90% between 30,000 sq. ft. and 40,000 sq. ft. 1,450,000 (9% and 40,000 sq. ft.) 1,050,000 (9% and 30,000 sq. ft.) = 400,000 90% * 400,000 = 360,000 Fair Value of Building = 1,050,000 + 360,000 = \$1,410,000 Exit Price \$ 450,000.00 Less: Recondition Costs \$ (50,000.00) Less: Transportation Costs \$ (20,000.00) Fair Value \$ 380,000.00

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Air Cleansing Machine Because there is no principal market, the most advantageous market would be used. Market A is the most advantageous market because it yields the highest net rate of return.
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