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Scenario JJ Enterprises is formed on December 31 2000 At that point it has one asset costing 2487 The asset has a three-year life with no salvage value and is expected to generate cash flows of 1000 on December 31 in the years 2001 2002 and 2003 Actual results are the same as planned Depreciation is the firms only expense All income is to be distributed as dividends on the three dates mentioned Other information includes The price index stands at 100 on December 31 2000 It goes up to 104 and 108 on January 1 2002 and 2003 respectively Net realizable value of the asset on December 31 in the years 2001 2002 and 2003 is 1500 600 and 0 respectively The firms asset IRR is 10 Your Task is to Produce Income statements for the years 2001 2002 and 2003 under 1 Historical costing 2 General price-level adjustment 3 Exit valuation 4 Replacement cost 5 Discounted cash flows Based on the information you have now created briefly address the following questions How does the information you produced meet the theoretical notion of usefulness 1 to 2 paragraphs Is the construct of utility a scientific or cultural notion 1 to 2 Paragraphs Addendum Replacement values are 2700 3000 and 3300 respectively for the years 2001 2002 and 2003 Valuation Calculations Our starting point for all five approaches remains the same The company was formed on December 31 2000 and has one asset costing 2487 Since we do not have any information otherwise we will assume that this is indeed the only asset Our starting point can be represented by the following balance sheet Please note that our example is oversimplified to illustrate the different valuation approaches Exhibit 1 Historical Costing Historical costing is the most familiar to users of accounting and accounting statements Unfortunately since we are usually
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