Three years ago Yeagley and Sons purchased the three assets listed in the following table. The chief financial officer, Kathy Dillon, is presently trying to decide what to do with each asset. (The irrelevance of She has three choices for each of the assets: (1) she can sell it, (2) she can sell it and replace it with an equivalent asset, or (3) she can simply keep it. The following information is provided to aid her decision. P4-2 (Inflation and bank loans) Asset Original Replacement Fair Market Present Value of Present Value of Cost Cost Value Future Cash Flows Produced by Old Asset Future Cash Flows of Equivalent Asset A $4,000 $1,000 $1,500 $2,500 $5,000 B 1,500 2,000 500 2,500 3,500 C 2,000 3,500 3,000 2,500 5,000 REQUIRED:

a. Assuming that Kathy chooses to keep Asset A and Asset B and sell and replace Asset C, evaluate her decisions. What decisions should she have made? Support your choices.