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Accumulated Depreciation

1. Present-value calculations, rather than future-value calculations, are the key to analysis in the field of corporate finance. Why is this the case? Explain the importance for Largo Global Inc. (LGI) of understanding today’s value of projected future revenues and/or costs.
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2. Based on your calculations in Tab 2, Question 8, which offer should LGI accept for the Bowie plant? Explain why. Be sure to include the concepts of risk and potential return as part of your discussion.
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3. The proposed sale of the Bowie plant is part of the effort to divest the company of underperforming assets. A total of $1.2 billion in assets, with a book value of $650 million, have been identified for potential sale. Assuming that all these sales could be accomplished in 2021, identify the major impacts on the following:
a. Balance Sheet, especially these accounts:
• Property, plant, and equipment
• Accumulated depreciation
• Net property, plant, and equipment
b. Statement of Cash Flows, especially the Long-Term Investing Activities
c. Income Statement
Explain the potential impacts, both positive and negative, of these changes for LGI.
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4. Based on your calculations in Tab 3, Questions 1–4, should LGI proceed with the acquisition of the robotics-based manufacturing equipment? Explain your reasoning. How would the acquisition fit into the efforts to turn the company around?
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5. In Tab 3, Question 5, did the change in the discount rate make proceeding with the purchase more or less desirable? What do you conclude from this result? Discuss the role of discount rates in LGI’s decision-making processes.
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