IE 5620 Quiz and Assignment Schedule (Spring 2013) Week Quiz or Assignment Due Date Topics/Comments Jan 7 -11 First Week Start watching streaming video lectures J
October 24, 2018
A professor of engineering economics owns a 1996 automobile. In the past 12 months, he has paid $2000 to replace the transmission, bought two new tires for $160, and installed a new tape deck for $110.
October 24, 2018

Discuss the financial statement impacts of postponing the purchase of the equipment.

On October 10, 2010, Mason Engineering Company completed negotiations on
a contract for the purchase of new equipment. Under the terms of the
agreement, the equipment may be purchased now or Mason may wait until
January 10, 2011, to make the purchase. The cost of the equipment is
$400,000. It will be financed by a note bearing interest at the market
rate. Straight-line depreciation over a 10-year life will be used for
book purposes. A double-declining balance over seven years will be used
for tax purposes. (One-half year of depreciation will be taken in the
year of purchase regardless of the date of purchase.)Required:
Discuss the financial statement impacts of postponing the purchase of
the equipment. Would the market price of the firm’s common stock be
affected by any or all of these impacts? Do not assume in your
discussion that the postponement will affect revenues or any operating
costs other than depreciation.
b. Discuss any cash flow impacts related to postponing the purchase of the equipment.
Efficient markets assume that stockholder wealth is affected by the
amount and timing of cash flows. Which alternative is more favorable to
them: purchasing before year-end or waiting until January? Explain your


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