On January 1 of the Current Year,Dentux Corp

question 74

Multiple Choice

On January 1 of the current year,Dentux Corp.purchases a patent from another corporation for $600,000.The patent has a remaining life of 10 years.The patent is the only asset purchased from that corporation.Also on January 1,Dentux purchases all of the assets of Fenton Corp.Included in the Fenton assets acquired is a patent worth $300,000 that has a 10-year remaining life.What is the allowable amortization deduction on the two patents?

• A)$60,000
• B)$90,000
• C)$80,000
• D)$160,000

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Definitions:

Cost of Capital

A rephrasing: The minimum return that a company must earn on existing asset base to satisfy its creditors, owners, and other providers of capital.

NPV

Net Present Value; a calculation used to assess the value of a project or investment by determining the present value of future cash flows.

Certainty Equivalent Factors

Refers to adjustments made to uncertain (risky) cash flows to equate them to certain cash flows, used in investment decision-making.

Risk Adjusted Discount Rate

A rate used in capital budgeting that adjusts for the risk of cash flows, providing a way to account for the riskiness of the project.