Qustion 5

Question 1

You are lucky to have won a new automobile, received a gift from a rich Aunt, won an award for literary achievement, and your employer just notified you, on the day you are retiring, that he was giving you $30,000 for your 25 years of outstanding service.

Briefly discuss:

· The tax consequences of each;

· Which result in the least amount of gross income; and

· What could be done to minimize your gross income?

Why might your employer want to consider the payment a bonus while you prefer to consider it a gift?

Question 2

The long term success of a company is depicted by the types of assets and the retained earnings of the company. The liabilities are then a direct reduction of these items. Remember that investors look at the types of assets and liabilities to determine if they will invest in a company.

How would you go about indicating to investors that all account balances are valid and free from potential errors? What types of financial records and information would you use to support your claims? Explain.

Question 3

Explain how the Net Present Value (NPV) and Internal Rate of Return (IRR) analyses work and how they can be used to make financial investment decisions. Provide an example of the NPV analysis.