Question

1. You borrow the following from your​ friends: ​ $1,400 from John and​ $600 from Mary. John charges you​ 5% and Mary charges you​ 10%. What is your combined​ before-tax cost of borrowing from your​ friends?

A.​15.00%

B.​$70

C.$2,000

D.​6.50%

2. If the company had a large depreciation expense during the​ period, the income statement could show a loss for the​ period, even though the cash account may have grown during the same period.

-True

-False

3. A firm is considering purchasing two assets. Asset L will have a useful life of 15 years and cost​ $4 million; it will have installation costs of​ $750,000 but no salvage or residual value. Asset S will have a useful life of 5 years and cost​ $2 million; it will have installation costs of​ $500,000 and a salvage or residual value of​ $400,000. Which asset will have a greater annual

straight−line depreciation?

A.Asset S has​ $103,333 more in depreciation per year.

B.Asset S has​ $37,500 more in depreciation per year.

C.Asset L has​ $37,500 more in depreciation per year.

D.Asset L has​ $54,167 more in depreciation per year.

4. A firm is considering purchasing an asset that will have a useful life of 15 years and cost​ $7.5 million; it will have installation costs of​ $300,000 and a salvage or residual value of​ $1,800,000. What is the annual straight−line depreciation for this​asset?

A.​$400,000 per year

B.$530,450 per year

C.​$422,000 per year

D.​$498,750 per year

Answer 1

1

Total Capital value = Value of John + Value of Mary

=1400+600

=2000

Weight of John = Value of John/Total Capital Value

= 1400/2000

=0.7

Weight of Mary = Value of Mary/Total Capital Value

= 600/2000

=0.3

Cost of Capital = Weight of John*Cost of John+Weight of Mary*Cost of Mary

Cost of Capital = 5*0.7+10*0.3

Cost of Capital = 6.5

2

True, because depreciation is a non cash expense

Please ask remaining parts separately, questions are unrelated. I have done one bonus