Metals Corp $\quad$ $\quad$ $\quad$ $\quad$ $\quad$

Metals Corp. has four factories with the following data:
$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text {Book Value}$ $\quad$$\quad$$\text {Expected Cash Flows}$
$\begin{array}{lrrrrr}&\text { December 31.2006 }& \underline{2007} & \underline{2008} & \underline{2009} & \underline{2010}\\ \text { Lead factory } & \$ 100 & \$ 40 & \$ 40 & \$ 40 & \$ 40 \\\text { Copper factory } & 200 & 50 & 50 & 50 & 50 \\\text { Aluminum factory } & 300 & 80 & 80 & 80 & 80 \\\text { Zinc factory } & 400 & 60 & 60 & 60 & 60\end{array}$

All cash flows are at year-end and terminate after December 31, 2010. The company's cost of capital is 10% and its tax rate is 35%.

a. What is the value of each factory for balance sheet purposes at December 31, 2006?
b. What impairment loss, if any, would be reported on Metals' 2006 income statement? How would it be reported and where would it be reported (i.e. what component of the income statement and other disclosures)?

Correct Answer:

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Asset impairment losses are part of inc...

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