2 While developing a new product line, Cook Company spent $3 million two years ago to build a plant for a new product. It then decided not to go forward with the project, so the building is available for sale or for a new product. Cook owns the building free and clear?there is no mortgage on it. Which of the following statements is CORRECT? Answer If the building could be sold, then the after-tax proceeds that would be generated by any such sale should be charged as a cost to any new project that would use it. This is an example of an externality, because the very existence of the building affects the cash flows for any new project that Rowell might consider. Since the building was built in the past, its cost is a sunk cost and thus need not be considered when new projects are being evaluated, even if it would be used by those new projects. If there is a mortgage loan on the building, then the interest on that loan would have to be charged to any new project that used the building. Since the building has been paid for, it can be used by another project with no additional cost. Therefore, it should not be refiected in the cash flows for any new project.

2 While developing a new product line, Cook Company spent $3 million two years ago to build a plant for a new product. It then decided not to go forward with the project, so the building is available for sale or for a new product. Cook owns the building free and clear?there is no mortgage on it. Which of the following statements is CORRECT? Answer If the building could be sold, then the after-tax proceeds that would be generated by any such sale should be charged as a cost to any new project that would use it. This is an example of an externality, because the very existence of the building affects the cash flows for any new project that Rowell might consider. Since the building was built in the past, its cost is a sunk cost and thus need not be considered when new projects are being evaluated, even if it would be used by those new projects. If there is a mortgage loan on the building, then the interest on that loan would have to be charged to any new project that used the building. Since the building has been paid for, it can be used by another project with no additional cost. Therefore, it should not be refiected in the cash flows for any new project.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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What is the maximum price you would be willing to pay for the business? If an investor group purchased the restaurant near the campus for $255, 867 and the fair value of the assets they acquired was $202,000, identify the account along with its balance, that is used to record the additional amount paid over the fair value of the assets.
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1
am. 117.
A buyer working with QRS Realty wants to make an offer on a property. To save time, the buyer makes a verbal offer of $210,000 and the seller agrees. The offer is: -invalid because it does not include a closing date-unenforceable because it is not in writing-voidable because the licensee did not review the offer-unilateral because the contract is not exclusive

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