Assume That It Will Cost You $1 Million to Shut

question 42

Multiple Choice

Assume that it will cost you $1 million to shut down the plant,but you are able to sell the plant for $5 million at any time.The value of the option to sell the plant will be closest to:

• A)$3.0 million
• B)$6.0 million
• C)$5.0 million
• D)$0.5 million

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Definitions:

U.S.GAAP

The set of accounting principles and standards used in the United States to govern the preparation of financial statements by publicly traded companies, focusing on transparency, consistency, and comparability.

Ascending Order of Liquidity

A financial classification method where assets are listed from the least liquid to the most liquid, typically starting with long-term investments and ending with cash.

Inventories

Items held by a company for the purpose of sale in the ordinary course of business, work in process, or materials to be consumed in the production process.

Historical Cost

The original monetary value of an asset or investment at the time it was acquired or made.