1. An asset was originally purchased for $1,000. This value was based on five years worth of cash flows of $237.40 discounted back at a rate of 6% (N=5, I/Y = 6, PMT = 237.40, FV = 0). It is being depreciated using straight-line depreciation with a salvage value of $0 at the end of the five years. The asset is now two years old and estimates have been changed so that it now has only two years left of useful life and expected cash flows of $200 per year. Furthermore, the discount rate has risen to 7%. What is the amount of the Impairment Loss that should be recorded?
a) $0, this does not qualify as an impairment
b) $142.70
c) $238.40
d) $361.60
2. A firm reports Assets of $7,500 on the Income Statement. On the Balance Sheet, they report Assets of $75,000, Equity of $25,000 and Liabilities of $50,000 which includes a Deferred Tax Liability $5,000. If the tax rate is 25%, then how much should Equity be after making the adjustment?
a) $10,000 b) $15,000 c) $20,000 d) $30,000