MBA800X26 - A. Value of asset: .4($9,000) + .6($12,000) =...

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Unformatted text preview: A. Value of asset: .4($9,000) + .6($12,000) = $10,800 (0.3+0..32)($9,000) + (0.3+0.08)($12,000) = $10,140 ($10,800/1.09) + ($10,140/1.09^2) = $18,443 Cash Asset $18,443 $18,443 Equity $18,443 $18,443 B. Cash is increased by $12,000. Asset value is: 0.5($9,000) + 0.5($12,000) = $10,500 $10,500/1.09 = $9,633 Cash Asset $12,000 9,633 $21,633 Equity $21,633 $21,633 C. Investment began at $18,433. Given an 9% rate would be: $18,433 X 9% = $1,659 = normal earnings Change in Equity is $21,633 (from B) - $18,443 (above) = $3,190 = net income = total earnings $3,190 - $1,659 = $1,531 (total earnings minus normal earnings equals abnormal earnings) D. Cash Asset $12,000 9,222 $21,222 Equity $21,222 E. $21,633 (from B) /$21,222 (from D) = F. $3,190 economic earnings $3,190/$18,443 = $21,222 17.30% G. $21,222 (from D) - $18,443 (from F) = $2,779 $2,779/$18,443 (from F) = 15.07% 15.07% - 9% (normal rate) = 6.07% 1.02 ...
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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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