The Interest Rate Is 10

question 22

Multiple Choice

The interest rate is 10%.A certain piece of land can be used for a parking lot, in which case there are no construction costs and it will yield a net return of $5,000 per year forever starting one year from now.Or it can have a house built on it.Building a house would cost $50,000 now.If a house is built on the lot, it will yield a stream of net income equal to $12,000 per year starting one year from now.No other uses are contemplated.The theory of asset markets predicts that the lot will sell for

• A)$120,000 and a house will be built on it.
• B)$50,000 and it will be used as a parking lot.
• C)$70,000 and a house will be built on it.
• D)$13,200 and a house will be built on it.
• E)$80,000 and it will be used as a parking lot.

Analyze the impact of changing production levels on costs and profitability.

Prepare traditional and contribution format income statements.

Identify and calculate incremental manufacturing costs.

Understand the ethical considerations in financial reporting.

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Definitions:

Drawee

The person or entity upon whom a check or draft is drawn and is responsible for paying the amount specified.

Presentment

The formal presentation of a financial instrument, such as a check or draft, for payment or acceptance.

Transfer Warranties

Legal assurances provided by a seller about the quality and ownership of goods being sold, particularly that the goods are free from any security interest or other lien not disclosed at the time of sale.

Agent

An individual or entity authorized to act on behalf of another, called the principal, in transactions or other matters.