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When a Company Acquires Land by Issuing 10,000 of Its

question 61

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When a company acquires land by issuing 10,000 of its common shares currently trading for $20 per share, the company must get an appraisal of the land and recognize a gain if the appraised value is more than the $200,000 value of the shares issued.


Definitions:

NPV Method

A capital budgeting technique that calculates the difference between the present value of cash inflows and outflows over a period of time to assess the profitability of an investment.

Reinvested

Refers to the practice of using profits or dividends earned from an investment to purchase additional shares or units, thus compounding the investment's growth.

Cost of Capital

The minimum rate of return a company must earn on its investments to maintain its market value and attract funds.

Capital Rationing

The process of selecting the most profitable projects to invest in when funds are limited.

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