Jose Garcia agrees to contribute land with a fair market value of $10,000 in exchange for 200 shares of Damian Inc.'s common sto

Answer:

Cost recovery deductions do not relate to any decrease in the property's value concerning which the deduction applies.

Explanation:

Capitalized costs refer to expenses incurred when constructing and financing a fixed asset, such as labor costs.

These expenses contribute to the asset's cost (capitalized) and are deducted gradually through depreciation, depletion, and amortization over time. They are not deducted from the revenue of the period they are incurred.

Thus, the cost deductions based on capitalized costs do not reflect the asset's value but represent an expense associated with that asset, with payments distributed over time.

For instance, if $1,200 is spent on constructing an asset valued at $500,000, that $1,200 will be capitalized over 12 months, resulting in a monthly deduction of $100 from expenses. This does not impact the asset's value ($500,000).

The primary option should be selected for procurement given its lower EAC. The breakdown is as follows: Option 1 costs $70,000 with a useful life of 6 years, whereas Option 2 costs $102,000 and lasts for 9 years.

Answer:

The range is between 40% and 60%.

Explanation:

To ascertain the equity for Primavera Holding, the financial leverage formula will be applied;

Financial Leverage = Asset / Equity

1.5 = $20 billion / Equity

Therefore, equity is calculated as $20/1.5 which equals $13.33 billion.

In order to determine net income, we first need to ascertain company sales using the asset turnover ratio;

Asset turnover = Sales / Assets

0.5 = Sales / $20 billion

This leads us to Sales = $10 billion.

Given that Primavera Holdings has a profit margin of 25%, the resulting net income is 25% of Sales resulting in $2.5 billion.

If the company maintains a payout ratio of 90%, shareholders would receive $9 billion in dividends, decreasing assets to ($20 - $9) $11 billion, and equity to ($13.33 - $9) $4.33 billion. Additionally, net income would drop by 3% of $9 billion, which is $0.27 billion.

Following the dividend payout, net income reduces to ($2.5 - $0.27) $2.23 billion

The Return On Equity (ROE) is determined using the formula = (Net Income / Equity) * 100

The calculation for ROE would be = ( $2.23 / $4.33 ) * 100

This results in an ROE of 51.50%

Given that the ROE falls within the range of 40% and 60%, this confirms the accuracy of the answer.