chapter 14 homework


14.18:  Income statement and cash flows are about flows and owners’ equity and balance sheets are about stocks
14.20: It would start at 3 million and depreciate at 75000 per year making the accounting value 2.925 million in the second year, 2.85 million in the third year until the 39th year when it has an accounting value of 75000. During the next 11 years it will  be worth 0
14.22: a) Prepare the income statement and cash flow statements by year for 10 years.
b) The economic value of this car is $336,811.
c) You can infer the economic value of the car by discounting the after-tax cash flows by the correct cost of capital (r = 12%) each year: $69, 500/1.121 +$71, 300/1.122 +· · ·+$66, 500/1.1210 ≈ $336, 811.
14.24: The deferred tax increase by 129 million. The cash flow was not as large as 1367 instead it was 1238. The reoccurring 1367 is a coincidence.

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