Reference no: EM132020331

1. Your company purchased a piece of land five years ago for $150,000 and subsequently added $175,000 in improvements. The current book value of the property is $225,000. There are two options for future use of the land: 1) the land can be sold today for $450,000 on a net after-tax basis; 2) your company can destroy the past improvements and build a factory on the land. In consideration of the factory project, what amount (if any) should the land be valued at?

a. The property should be valued at zero since it is a sunk cost.

b. The present book value of $225,000.

c. The original $150,000 purchase price of the land itself.

d. The sales price of $450,000 less the book value of the improvements.

e. The after-tax sales value of $450,000.

2. Given the following information, what is the standard deviation of stock A if it has an expected return of .27% in a boom economy, an expected return of 18% in a good economy, and an expected return of 3% in a recession? The probabilities of boom, normal, recession are 0.2, 0.6, and 0.2, respectively.

a. 0.0773

b. 0.0703

c. 0.0128

d. 0.0697

e. 0.1159