4 Inflation impacts which of the following Market Interest Rates _ Earning power

Question

4 Inflation impacts which of the following Market Interest Rates _ Earning power Purchasing power Consumer Price Index _ 5. Which of the following are not part inflation impacts? (a) Borrowers repay historical loan amounts with dollars of decreased purchasing (b) Depreciation expenses are based on lasts replacement costs and routinely (c) Depreciation expense is charged to taxable income in dollars of declining (d) Inflated salvage value combined with book values based on historical costs power, reducing the debt-financing cost expressed in constant dollars values; taxable income is overstated, resulting in higher taxes results in higher taxable gains. 6. Economic Service Life is based upon which of the following factors? (a) Minimum annual equivalent costs b) Price of a new item (c) Salvage value (d) Sales projections 7. Which of the following factors are considered when defining MARR (a) Net equity flow (b) Cost of equity (c) Opportunity cost (d) Lending interest rate

Explanation / Answer

(4) Option (c)

The higher (lower) the inflation rate, the lower (higher) the purchasing power.

(5) Option (b)

Depreciation expense is expressed in terms of current dollars and not in constant dollars.

(6) Option (a)

Economic service life is the year in which annual equivalent worth (cost) is minimum.

(7) Option (b)

Cost of equity is an accounting cost of capital and is included in determining MARR. Opportunity cost is the benefit foregone by choosing one alternative over another, and is included in MARR.

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