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Three Years Ago, Astro Masters, Inc Based on Your Calculations, What Would Be the Total Cash

question 28

Multiple Choice

Three years ago, Astro Masters, Inc. purchased the three assets listed in the following table. The chief financial officer, Bill Moss, is presently trying to decide what to do with each asset. He has three options for each asset: (1) sell it; (2) keep it; and (3) sell it and replace it with an equivalent asset. The following information is provided to aid his decision.
$\begin{array}{|c|c|c|c|c|c|}\hline \text { Asset } & \begin{array}{c}\text { Original } \\\text { Cost }\end{array} & \begin{array}{c}\text { Replacement } \\\text { Cost }\end{array} & \begin{array}{c}\text { Fair }\\\text { Market } \\\text { Value }\end{array} & \begin{array}{c}\text { PresentValue of Future } \\\text { Cash Flows Produced } \\\text { by Old Asset }\end{array} & \begin{array}{c}\text { Present Value of } \\\text { Future Cash Flows } \\\text { of Equivalent Asset }\end{array} \\\hline \mathrm{A} & \$ 4,500 & \$ 1,500 & \$ 2,000 & \$ 3,000 & \$ 5,000 \\\hline \mathrm{B} & \$ 2,000 & \$ 2,500 & \$ 1,000 & \$ 3,000 & \$ 4,500 \\\hline \mathrm{C} & \$ 2,500 & \$ 4,000 & \$ 3,500 & \$ 3,000 & \$ 6,000 \\\hline\end{array}$
Based on your calculations, what would be the total cash flows associated with selling and replacing Asset C with an equivalent asset?

Definitions:

Loss

This occurs when expenses exceed revenues, or when the selling price of an asset is less than its purchase price, resulting in a negative financial outcome.

Long Position

An investment strategy where an investor buys securities with the expectation that they will increase in value.

Commodity Futures

Financial contracts obligating the buyer to purchase an asset, or the seller to sell an asset, such as a physical commodity or a financial instrument, at a predetermined future date and price.

Price

The amount of money or its equivalent paid or charged for something, often determined by supply and demand.