Assume that an asset is being examined and it is determined that its cash flows would be

Question:

Assume that an asset is being examined and it is determined that its cash flows would be $10,000 per year for four years (assume that all cash flows are received at the end of the year). The carrying value of the asset is $35,000 and its replacement cost is $30,000. The firm’s is 10 percent.
Required:
(a) What would be the amount, if any, that should be written off because the asset is impaired under SFAS No. 121?
(b) Why is your answer in part (a) anomalous and how does SFAS No. 121 justify it?
(c) Would your answer to part (a) be different if the cash flows were $8,000 rather than $10,000? Explain.
(d) Is there anything unusual about your answer to part (c) since accounting rules are frequently concerned with conservatism?
Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...