Dupont Corp. recently discontinued operations on one of its four branches, the branch is now conducting a clearance sale. The fixed assets in the discontinued branch are now being offered for sale and a buyer has been identified. The sale can take place within a year. Despite all this, the management is insisting on presenting all the fixed assets, including those that belong to the disposal group as PPE as it would give an impression of large manufacturing capacity. They are not in favour of presenting any amount of revenues from discontinued operations as well. Explain to them why these assets are no longer PPE and should be separated as assets-held-for- sale and why income on discontinued operation should be separated from continuing operation.

Due to increased product demand, the Jax Company has insufficient floor space in its current production facility.  Three alternative solutions have been identified: (A1) do nothing, (A2) rearrange an area of the existing floor space, or (A3) build an addition to the present plant.  Analysis is conducted assuming a five-year planning horizon and an MARR of 30%.  There is some uncertainty as to whether Jax will face competition for the new business.  If alternative A1 is pursued, the estimated Present Worth will be $0.  If alternative A2 is chosen, the Present Worth realized will depend on whether competition arises.  Under A2, there is a 60% chance of competition occurring.  The estimated PW under A2 will be $50,000 if competition arises; $30,000 if there is no competition.  Under A3, there is a 20% chance of competition.  The estimated PW under A3 will be -$100,000 if competition arises; $90,000 if there is no competition. (a) Based on expected PW, what course should Jax follow? (b)…

II.  Jerry Prior, Beeler Corporation’s controller, is concerned that net income may be lower this year. He is afraid upper-level management might recommend cost reductions by laying off accounting staff including him. Prior knows that depreciation is a major expense for Beeler. The company currently uses the double-declining-balance method for both financial reporting and tax purposes, and he’s thinking of selling equipment that, given its age, is primarily used when there are periodic spikes in demand. The equipment has a carrying value of $2,000,000 and a fair value of $2,180,000. The gain on the sale would be reported in the income statement. He doesn’t want to highlight this method of increasing income. He thinks, “Why don’t I increase the estimated useful lives and the salvage values? That will decrease depreciation expense and require less extensive disclosure, since the changes are accounted for prospectively. I may be able to save my job and those of my staff.” Instructions…

Brandt Enterprises is considering a new project that has a cost of $1,000,000, and the CFO set up the following simple decision tree to show its three most likely scenarios. The firm could arrange with its work force and suppliers to cease operations at the end of Year 1 should it choose to do so, but to obtain this abandonment option, it would have to make a payment to those parties. How much is the option to abandon worth to the firm? WACC-11.5% Prob. -20% Prob. -60% Prob. -20% 1-0 -$1,000 A $55.08 B) $57.98 C) $61.03 D) $64.08 E $67.29 Dollars in Thousands 1-2 $800.0 $800.0 $520.0 $520.0 -$200.0 -$200.0 -$200,0 $800.0 $520.0 NPV This State $938.10 $259.76 -$1,484.52 Prob. x NPV $187.62 $155.86 -$296.90 Exp. NPV-$46.57

The Heinrich Tire Company recalled a tire in its subcompact line in December 2024. Costs associated with the recall were originally thought to approximate $55 million. Now, though, while management feels it is probable the company will incur substantial costs, all discussions indicate that $55 million is an excessive amount. Based on prior recalls in the industry, management has provided the following probability distribution for the potential loss: Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Loss Amount Probability $ 45 million 20% $35 million 50% $ 25 million 30% An arrangement with a consortium of distributors requires that all recall costs be settled at the end of 2025. The risk-free rate of interest is 8%. Required: 1. & 2. By the traditional approach to measuring loss contingencies, what amount would Heinrich record at the end of 2024 for the loss and contingent liability? For the remainder of this…