A Property Has a McDonald's Restaurant on It, Which Can

question 13

Multiple Choice

A property has a McDonald's restaurant on it, which can earn $50,000 per year. In any other use including another brand of restaurant) , the most it can earn is $40,000 per year. Assuming a discount rate of 10% and constant cash flow in perpetuity, what is the "investment value" of this property to McDonald's, and what is its "market value"?

• A) Both investment value and market value are $400,000.
• B) Both investment value and market value are $500,000.
• C) Investment value is $400,000 and market value is $500,000.
• D) Investment value is $500,000 and market value is $400,000.

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Definitions:

Amortized Cost

A financial term referring to the gradual reduction of a debt over a period of time through regular payments covering both principal and interest.

Return On Total Assets

A financial ratio that measures the profitability of a company by calculating how effectively a company uses its total assets to generate profit.

Consolidated Financial Statements

Financial statements that present the assets, liabilities, equity, revenue, expenses, and cash flows of a parent company and its subsidiaries as one entity.

Equity Method

A method of accounting that allows a company to record profits and losses based on its share of ownership in another company.