The Wasson Widget Co

question 11

Multiple Choice

The Wasson Widget Co. has 1,000 obsolete widgets on hand. These units were produced a year ago at a cost of $10,000. The units could be scrapped for $1,000 or reworked for $2,000 and sold for $5,000. Which alternative is desirable and why?

• A) Scrap, income of $1,000 is higher than the other option
• B) Rework, incremental loss $7,000
• C) Rework, income of $3,000 is higher than the other option
• D) Scrap, incremental loss $9,000

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Definitions:

Par Value

The nominal or face value of a bond, share of stock, or coupon as indicated on a bond or stock certificate. It is a static value determined at the time of issuance.

Face Value

The nominal value stated on a financial instrument, such as a bond or stock certificate.

Present Value

The current economic value of a future financial sum or sequence of inflows, determined by a particular rate of return.

Coupon Rate

The interest rate stated on a bond when issued, which represents the annual interest payment made to bondholders.