Purchase Solution

Role of Economic Value and Replacement Value

Not what you're looking for?

Ask Custom Question

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."

** 1/2 pages
** References

Purchase this Solution
Solution Summary

The roles of economic value and replacement values are determined. The expert critically evaluates the comments.

Solution Preview

Solving for terminal velocity yields: V_t=((ρ_p-ρ_g)d^2 g)/(18(1.81×〖10〗^(-5) )Pa*s)
V_t=((1000 Kg⁄(m^3-1.225 Kg⁄(m^3)〖(10nm)〗^2 g)))/(18(1.81×〖10〗^(-5) )Pa*s)
V_t=((998.775 ...

Purchase this Solution
Free BrainMass Quizzes
Paradigms and Frameworks of Management Research

This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Income Streams

In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.

SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

View More Free Quizzes
Related BrainMass Solutions

  • The Chang Company: Replacement Analysis for new machine

    337582 The Chang Company: Replacement Analysis for new machine The Chang Company is considering the purchase of a new machine to replace an obsolete one. The machine being used for the operation has a book value and a market value of zero.

  • Arguments Supporting Cost over Replacement Values

    Replacement cost is highly variable: The market for an item changes constantly due to local, national, and international economic events; technological factors; and competition among suppliers of the item, to name just a few factors.

  • Asset replacement and capital budgeting

    The new equipment will save $35,000 each year and its economic life is 3 years. The salvage value is $30,000. Does the acquisition of this new machine satisfy the 6% minimum rate?

  • Depreciation;signficant concept for capitalization policy

    Matching of revenue and expense Choose the correct answer and explain in one sentence: 1. Depreciation, in accounting, is a process that results in: a. an accurate measurement of the economic usefulness of an asset.

  • Capital Budgeting and the Key role of Management

    354843 Capital Budgeting and the Key role of Management Capital budgeting emphasizes the key role management has in value creation by taking projects and expanding the size of the firm if profitable. Do you agree or disagree with this statement?

  • Financial Reporting and Disclosure Issues

    An inflation rate of 2% can significantly affect the value of a 30-year asset. This means that the replacement value of this asset may be increasing more rapidly.

  • Sale or Purchase Values in a Poor Economy

    There is the market value and the replacement cost value. Replacement cost is sometimes called cost, net realizable value, or other terms depending on the product.

  • FASB No. 157, Fair value accounting

    The replacement cost is the buying price for the asset in the relevant second hand market. The replacement cost typically is higher than the net realizable value because of transaction costs.

  • Purchase of a new machine to replace an obsolete one

    The machine being used for the operation has both a book value and a market value of zero; it is in good working order, however, and will last physically for at least another 10 years.

View More Related Solutions