Pierce Exchanges an Asset (Adjusted Basis of $14,000; Fair Market

question 177

True/False

Pierce exchanges an asset (adjusted basis of $14,000; fair market value of $18,000) for another asset (fair market value of $15,000).In addition, he receives cash of $3,000.If the exchange qualifies as a like-kind exchange, his recognized gain is $3,000 and his adjusted basis for the property received is $17,000 ($14,000 + $3,000 recognized gain).

Grasp the concept of the optimal capital structure and its relation to bankruptcy costs and firm value.

Understand the financial distress costs and their impact on firm value.

Identify and calculate the tax shield benefit of debt.

Analyze leveraged buyouts and the effect of borrowing to repurchase stock on firm value and EPS.

---

Definitions:

Seventeenth Amendment

An amendment to the United States Constitution that established the direct election of U.S. Senators by the citizens of a state, rather than by state legislatures.

Direct Election

A method of choosing political officials where the voters directly cast ballots for the persons or political party that they desire to see elected.

Marbury v. Madison

A landmark Supreme Court case in 1803 that established the principle of judicial review, allowing courts to declare laws unconstitutional.

Articles of Confederation

The original constitution of the United States, ratified in 1781, which was replaced by the current Constitution in 1789 due to its weaknesses.