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Morgan Stanley Credit Risk Summer Analyst Interview Question (student candidate)

I interviewed in New York, NY and was asked:
"An airline company is replacing their entire fleet of planes. The old planes have zero salvage value and there is no depreciation to deal with. Explain the effect on the the company's financial statements."
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Part of a Credit Risk Summer Analyst Interview Review - one of 977 Morgan Stanley Interview Reviews

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I suppose it depends if they are paying with cash or on account. The likely position is on account, so assets increase by new fleet purchase price, liabilities increase by same amount. If cash is used, then -cash and +assets. This would have an affect on statement of cash flows - cash from investing activities.

Since you cannot sell the old fleet ($0 salvage) and no depreciation is left, there is nothing you can do to write-off the old assets. No affect on financial statement regarding old fleet.
- Eric on Jan 7, 2013

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