Role of economic value and replacement value

Assignment Help Finance Basics
Reference no: EM1330818

Role of Economic Value and Replacement Value

Critically evaluate these comments. Please do not wander; concentrate on the issues described by the quotation.

- "To me, economic value is the only justifiable basis for measuring plant assets for purposes of evaluating performance. By economic value, I mean the present value of expected future services. Still, we do not even do this acquisition of new assets - that is, we may compute a positive net present value, using discounted case flow; but we record the asset at no more than its cost. In this way, the excess present value is not shown in the initial balance sheet. Moreover, the use of replacement costs in the subsequent years is also unlikely to result in showing economic values. The replacement cost will probably be less than economic value at any given instant of an asset's life."

- "Market values are totally unappealing to me because they represent a second-best alternative value- that is, they ordinarily represent the maximum amount obtainable from an alternative that has been rejected. Obviously, if the market value exceeds the economic value of the assets in use, they should be sold. However, in most instances, the opposite is true; market values of individual assets are far below their economic value in use."

- "The obtaining and recording of total present values of individual assets based on discounted-cash-flow techniques is an infeasible alternative. I, therefore, conclude that replacement cost (less accumulated depreciation) of similar assets producing similar services is the best practical approximation of the economic value of the assets in use. Of course, it is more appropriate for the evaluation of the division's performance than the division manager's performance."

Reference no: EM1330818

Reviews

Write a Review

 

Finance Basics Questions & Answers

  Explain portfolio management

Explain Portfolio management - Forex Using the currency exposures and exchange rates given above

  Compute npv depreciation using simplified straight-line

Compute NPV Depreciation using simplified straight-line method and cost of new preferred stock.

  What do you predict net income and revenue to be next year

How would you measure the corporation's revenue performance over the last few years( for example, is it incresing, declining, stagent)? what are the reasons for your assessment? What factors will have the greatest influence on the evaluation o..

  Forecasting conclusions that support tfc’s decision

From the scenario, cite your forecasting conclusions that support TFC’s decision to expand to the West Coast market. Speculate as to whether or not the agency conflict discussed in the scenario could become a roadblock to your conclusions.

  Tvm concept situation and value of money

What TVM concept (s) is represented in the situation? What is the value of the money represented by the situation? How did you arrive a the value?

  Determine the required return on this stock

Calculation of current required return on the stock - Determine the required return on this stock

  Basic concepts in finance-solution set

You currently receive $10,000 per year on annuity contract. It will expire in eight years. Someone wants to purchase the contract from you. If you can earn 12% on other investments of the same quality and risk, how much would you be willing to sel..

  Computation of cost of capital

Computation of cost of capital and compute the cost of capital of investing in a project with a beta of 0.8

  Discuss on investment plan for peterson music

Discuss on Investment plan for Peterson Music has the chance to purchase the copyright to a new album of songs

  Computation of npv of an investment

Computation of NPV of an investment and What is the net present value of this investment and should you do it

  Determining the annual rate

Find out the compound amount if $6,400 is invested for 2 years at 12% compounded monthly. What difference would compounding daily make in this example?

  Risk tolerance as well as your need to diversify

Risk tolerance as well as your need to diversify the portfolio and the Effects of Portfolio Risk for Average Stocks will impact your future investment decisions

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd