MBA800X27 - $14,036 X 9 = $1,263 normal earnings Net income = $22,570-$20,000 = $2,570 $2,570 $1,263 = $1,306 abnormal earnings $1,306/$14,036 =

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A. Value of asset: .4($6,000) + .6($10,000) = $8,400 (0.42+0.2)($6,000) + (0.18+0.2)($10,000) = $7,520 ($8,400/1.09) + ($7,520/1.09^2) = $14,036 Cash $5,964 Equity $20,000 Asset 14,036 $20,000 $20,000 B. Cash is increased by $10,000. Asset value is: 0.7($6,000) + 0.3($10,000) = $7,200 $7,200/1.09 = $6,606 Cash $15,964 Equity $22,570 Asset 6,606 $22,570 $22,570 C. Investment began at $14,036. Given an 9% rate would be:
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Unformatted text preview: $14,036 X 9% = $1,263 normal earnings Net income = $22,570-$20,000 = $2,570 $2,570 - $1,263 = $1,306 abnormal earnings $1,306/$14,036 = 9.3% D. Cash $15,964 Equity $22,982 Asset 7,018 $22,982 $22,982 E. $22,570 (from B) /$22,982 (from D) = 0.982or 0.982 to 1 or 98.2%, but not 98.2 F. $2,570 economic earnings $2,570/$14,036 = 18.31% G. $22,982 (from D) - $20,000 = $2,982 $2,982/$14,036 = 21.25%...
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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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