[jeff]

@h0wdyus

Incorrect

The answer is B. Comparable sales.

“The use of comparable sales is not an income approach to valuation of a business, it is a market approach. Under the comparable sales approach, the value of a business is determined by comparing it to other entities with comparable characteristics for which the value is more readily determinable.”

This was a tricky one

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[RandomAlt]

Which of the following methods should be used if capital rationing needs to be considered when comparing capital projects?

A. Net present value.

B. Internal rate of return.

C. Return on investment.

D. Profitability index.

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REG - [02/14/2015 --> 92]

[h0wdyus]

D prof index

FAR - 81 29th Aug 2013
AUD - 84
REG - 82
BEC - 89 29th Aug 2014
Using Yager

FROM NJ

[RandomAlt]

@h0wdyus Correct

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[stoleway]

Answer is 12.5%

Interest expense / net proceeds or usable fund

usable fund = principal- interest- compensation ballance

10,000 / 80,000

12.5%

REG -63│ 84!!
BEC- 59│70│ 71 │78!
AUD- 75!
FAR- 87!

Mass-CPA

[h0wdyus]

@stoleway

the interest should be 9000. 1000 is earned on the compensating balance so it should be deducted.

should be 11.25

FAR - 81 29th Aug 2013
AUD - 84
REG - 82
BEC - 89 29th Aug 2014
Using Yager

FROM NJ

[RandomAlt]

It says non-interest bearing account

FAR - [10/07/2013 --> 66] [07/07/2014 --> 86]
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REG - [02/14/2015 --> 92]

[h0wdyus]

Also the fund available should be 90,000 not 80000. The 10,000 comp balance is available since we earn 10% on that. The answer should be 10% as i originally though.

FAR - 81 29th Aug 2013
AUD - 84
REG - 82
BEC - 89 29th Aug 2014
Using Yager

FROM NJ

[h0wdyus]

I missed the non interest bearing part. In that case interest is 10k and available funds should still be 90k. hmmm

FAR - 81 29th Aug 2013
AUD - 84
REG - 82
BEC - 89 29th Aug 2014
Using Yager

FROM NJ

[stoleway]

Thats the solution ninja gave.

REG -63│ 84!!
BEC- 59│70│ 71 │78!
AUD- 75!
FAR- 87!

Mass-CPA

[RandomAlt]

Post deleted to avoid confusion

FAR - [10/07/2013 --> 66] [07/07/2014 --> 86]
BEC - [08/31/2014 --> 86]
AUD - [11/24/2014 --> 88]
REG - [02/14/2015 --> 92]

[RandomAlt]

I have now seen 2 questions where NINJA questions contradict equations I thought I knew…that is scary

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[h0wdyus]

Okay. The ninja answer is correct. In discount loan. The interest is deducted from the loan amount. In case of compensating balance, it is also deducted. Since the comp balance is non interest bearing .. interest remains at 10000.

10000/80000 is the correct answer.

FAR - 81 29th Aug 2013
AUD - 84
REG - 82
BEC - 89 29th Aug 2014
Using Yager

FROM NJ

[RandomAlt]

@h0wdyus Thank you for checking that answer

I just removed my last post to avoid confusing people reading through the posts

FAR - [10/07/2013 --> 66] [07/07/2014 --> 86]
BEC - [08/31/2014 --> 86]
AUD - [11/24/2014 --> 88]
REG - [02/14/2015 --> 92]

[h0wdyus]

@random

The concept is .. deduct the discount amount of loan and the compensating balance in the denominator. If the question hints at interest on compensating balance then deduct it otherwise don't deduct in the numerator.

Regarding Residual income. Use the Net Income. that is what wiley says. I know these formulas are diff in diff book. One in becker for divided and share valuation is not in Wiley. So learn them both and see what data is provided in the question and apply the one that works.

FAR - 81 29th Aug 2013
AUD - 84
REG - 82
BEC - 89 29th Aug 2014
Using Yager

FROM NJ

[RandomAlt]

75…75…75…75…75

FAR - [10/07/2013 --> 66] [07/07/2014 --> 86]
BEC - [08/31/2014 --> 86]
AUD - [11/24/2014 --> 88]
REG - [02/14/2015 --> 92]

[Author]

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