Darlene Inc. owns shares in the Jacob Corporation that pay an annual dividend of $10,000. As part of an agreement with Jacob Corporation's majority shareholders, Darlene Inc. will sell the shares to Jacob Corporation's majority shareholders at the end of five years for $500,000, if Jacob achieves preset performance targets. If the targets aren't met, Jacob will sell the shares for $200,000. Jacob estimates there's a 75% chance of achieving the performance targets.

Assuming the risk-free rate is 5% and the risk-adjusted rate is 8%, what is the fair value of the Darlene's investment in Jacob using the expected cash flow approach? (PV tables are attached.)

• A.

  $425,000

• B.

  $435,058

• C.

  $376,293

• D.

  $380,21 9

The statement "increases assets during the period through the sale of inventory" describes which financial statement element?

• A.

  Revenues

• B.

  Assets

• C.

  Prepaid expenses

• D.

  Equity