Financial Management: Theory & Practice
15th Edition
ISBN: 9781337248006
Author: Eugene F. Brigham; Michael C. Ehrhardt
Publisher: Cengage Learning US
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Chapter 12, Problem 3P
Summary Introduction
To determine: Additional funds needed and the reason why it is different from the previous problem.
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Please select the option that best analyzes the WORKING CAPITAL for our example company.
The working capital represents the amount of current assets available to settle our current liabilities. Our example company will definitely be able to pay their current liabilities as they come due.
The working capital represents the amount of current assets available to settle our current liabilities. The current liabilities are not due for more than two years so our current asset amounts are inconsequential.
The working capital represents the amount of current assets available to settle our current liabilities. Our example company will be unable to pay their current liabilities as they come due.
The working capital represents the amount of current assets available to settle our current liabilities. We cannot determine if our example company will be able to pay their current liabilities as they come due.
b. What effect would a $10.2 million capital expense have on this year's earnings if the capital is depreciated at a rate
of $2.04 million per year for five years? What effect would it have on next year's earnings? (Select all the choices
that apply.)
A. Capital expenses do not affect earnings directly. However, the depreciation of $2.04 million would appear
each year as a capital expense.
B. Capital expenses do not affect earnings directly. However, the depreciation of $2.04 million would appear
each year as an operating expense.
C. With a reduction in taxes of 25% × $2.04 million = $0.51 million, earnings would be lower by
$2.04 million - $0.51 million = $1.53 million for each of the next 5 years.
D. With an increase in taxes of 25% × $2.04 million = $0.51 million, earnings would be higher by
$2.04 million - $0.51 million = $1.53 million for each of the next 5 years.
Please answer MCQ not working required
Chapter 12 Solutions
Financial Management: Theory & Practice
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