Metals Corp $\quad$ $\quad$ $\quad$ $\quad$ $\quad$

question 19

Essay

Metals Corp. has four factories with the following data:
$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text {Book Value}$ $\quad$$\quad$$\text {Expected Cash Flows}$
$\begin{array}{lrrrrr}&\text { December 31.2006 }& \underline{2007} & \underline{2008} & \underline{2009} & \underline{2010}\\ \text { Lead factory } & \$ 100 & \$ 40 & \$ 40 & \$ 40 & \$ 40 \\\text { Copper factory } & 200 & 50 & 50 & 50 & 50 \\\text { Aluminum factory } & 300 & 80 & 80 & 80 & 80 \\\text { Zinc factory } & 400 & 60 & 60 & 60 & 60\end{array}$

All cash flows are at year-end and terminate after December 31, 2010. The company's cost of capital is 10% and its tax rate is 35%.

a. What is the value of each factory for balance sheet purposes at December 31, 2006?
b. What impairment loss, if any, would be reported on Metals' 2006 income statement? How would it be reported and where would it be reported (i.e. what component of the income statement and other disclosures)?

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Definitions:

Independent Arrival

The concept in queueing theory where the arrival of customers or entities is not influenced by previous arrivals.

Large Population

Refers to a substantial number of units or individuals within a specified area or group, often used in statistical analysis and sampling.

M/M/1 Assumptions

Assumptions used in queuing theory where there is a single server, arrivals are Markovian (Poisson process), service times are exponentially distributed, and there is an unlimited queue.

Average Number

A mathematics term referring to the sum of a list of numbers divided by the count of numbers in the list.