A Lump-Sum Purchase of Assets Requires an Allocation of the Purchase

question 66

Multiple Choice

A lump-sum purchase of assets requires an allocation of the purchase price among the assets acquired. This allocation method is called the:

• A)book-value method.
• B)relative-fair-value method.
• C)accumulated method.
• D)betterment approach.

---

Definitions:

Hotelling Rule

A theory in economics that states the net price (price minus extraction costs) of a non-renewable resource should increase at the rate of interest over time.

Exhaustible Resource

A natural resource that can be depleted and is not replenished over a short geological time frame.

Discount Rate

The discount rate is the interest rate used in discounted cash flow analysis to determine the present value of future cash flows, reflecting the time value of money and risk.

Net Present Value

A financial metric that calculates the difference between the present value of cash inflows and outflows over a period, used in capital budgeting to assess the profitability of an investment.