Alpha company plans to expand into a new geographic area

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Reference no: EM13583311

Alpha Company plans to expand into a new geographic area. The executives and shareholders expect the following events to take place over a two-year period and the events actually take place. So, I am saying that the expectations are actually realized.

Year 1
January 1:
Issue stock for $10,000 cash
Purchase equipment for $8,000. The equipment is depreciated straight line over 2 years with no salvage value.
Purchase inventory for $2,000 cash

December 31:
Sell all the inventory for $8,000
Pay out all the cash as dividends.

Required:
1. Assume the appropriate discount rate is 10 percent. What is the present value of the project from the point of view of the person who purchased the stock?
2. What amount of financial income will Alpha report each year?
3. Assume the appropriate discount rate is 10 percent. What is the present value of the financial net income?
4. Assume the appropriate discount rate is 10 percent. What is the present value of the abnormal financial net income?
5. In this instance, is accounting useful?

Reference no: EM13583311

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