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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