MBA800X21

# MBA800X21 - A. Value of asset: .5(\$4000) + .5(\$2000) =...

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A. Value of asset: .5(\$4000) + .5(\$2000) = \$3,000 (same expected value for 2005 and 2006) (\$3000/1.1) + (\$3,000/1.1^2) = \$5206 Cash \$2,794 Common Stock \$8,000 Asset 5,206 Ret. Earnings - \$8,000 \$8,000 B. Cash is increased by \$4000. Asset value is: 0.75(\$4000) + 0.25(\$2000) = \$3500 \$3500/1.1 = \$3182 Cash \$6,794 Common Stock \$8,000 Asset 3,182 Ret. Earnings 1,976 \$9,976 \$9,976 C. Assets began at \$8000. Given a 10% rate would be: \$8000 X 1.1 = \$8,800 (normal earnings are \$800) Assets are \$9976. Thus \$9976 - \$8800 = \$1176 abnormal \$1176/\$8000 = 14.7% [another way that was accepted] On the asset only, \$5206 X 1.1 = \$5727 Asset gave \$4000 in cash and was worth \$3182: \$4000+ \$3182 = \$7182 \$7182 - \$5727 = \$1455 abnorm or \$1455/\$5206 is 27.9% D. Cash \$6,794 Common Stock \$8,000 Asset 2,603 Ret. Earnings 1,397 \$9,397 \$9,397 E. \$9976/\$9397 = 1.06 F. \$1976 econ earnings \$1976/\$8000 = 24.7% (or 38.0% if considering only asset as base) G. \$1397 acctg. Earnings \$1397/\$8000 = 17.5% (or 26.8% if only asset as base)

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H. Combine the following:
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## This note was uploaded on 07/28/2011 for the course MBA 800 taught by Professor Wallin during the Summer '11 term at Ohio State.

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MBA800X21 - A. Value of asset: .5(\$4000) + .5(\$2000) =...

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