Financial Accounting Theory and Analysis, 8eFinancial Accounting Theory and Analysis ISBN: 0471652431 Author: Richard G. Schroeder, Myrtle W. Clark, Jack M. Cathey;copyright ? 2005 John Wiley & Sons, Inc.;cHAPTER 9;Case 9-2 Purchase of Assets;On October 10, 2005, Mason Engineering Company completed negotiations;on a contract for the purchase of new equipment. Under the terms of the;agreement, the equipment may be purchased now or Mason may wait until;January 10, 2006, to make the purchase. The cost of the equipment is;$400,000. It will be financed by a note bearing interest at the market rate of;interest. Straight-line depreciation over a ten-year life will be used for book;purposes. A double-declining balance over seven years will be used for tax;purposes. (One-half year?s depreciation will be taken in the year of purchase;regardless of the date of purchase.);Required;a. Discuss the financial statement impacts of postponing the purchase of;the equipment. Would the market price of the firm?s common stock be;affected by any or all of these impacts? Do not assume in your discussion;that the postponement will affect revenues or any operating costs;other than depreciation.;b. Discuss any cash flow impacts related to postponing the purchase of;the equipment.;c. Efficient markets assume that stockholder wealth is affected by the;amount and timing of cash flows. Which alternative is more favorable;to them: purchasing before year-end or waiting until January? Explain;your answer.
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