Explain, with examples, why accruals reverse overstate the firm's profit.
Q: profit of a firm if a debenture is issued at
A: A debenture is said to be issued at a premium when the price charged is more than its nominal…
Q: Which of the following statements is CORRECT? O The more depreciation a firm reports, the higher its…
A: Depreciation means reduction in value of fixed assets over the period of time. It is for normal wear…
Q: How can inflation affect the comparability of financial ratios between firms? Explain your answer
A: Introduction: Usually, inflation is nothing but an increase in prices of most regular or widely used…
Q: hat is the rationale for valuing a firm using the two-stage dividend discount model versus other…
A: Step 1 The two-stage approach is frequently used to assess the intrinsic value of a stock issued by…
Q: operating
A: Operating leverage is a leverage which helps us to know the cost structure of a company & also…
Q: What does a negative value for unlevered free cash flow imply for the claimants of a firm
A: Unlevered free cash flow for a company is that free cash flow which is determined and computed…
Q: Why might a company want to hedge its balance sheet exposure? What is the paradox associated with…
A: Reason for company to want to hedge its balance sheet exposure: For avoiding the impact of…
Q: Which TWO of the following are possible effects of rising prices upon financial statements?…
A: We have the following question: Which TWO of the following are possible effects of rising prices…
Q: Explain what Return on Assets (ROA) measures? Will two firms with the same EBIT have the same ROA?
A: Return on assets is a measure used by companies to analyse how effectively assets of the business…
Q: If a company has over capitalization, rate of earning is: Select one: a. equal with the rate of…
A: In case of over capitalization, a company issues more debt and equity as compared to the worth of…
Q: What does this say about the company's profitability?
A: We are provided with three profitability ratios here - net profit margin ratio, ROA and ROE - and we…
Q: How do profit potential and legal considerations affect a firm’scredit policy?
A: It refers to the policy which states interest rate and duration that are relevant to the funds…
Q: Explain why there is a cost to using reinvested earnings; that is,why aren’t reinvested earnings a…
A: Introduction: Reinvested earnings are the share of direct investors’ earnings from direct…
Q: . CALCULATE the value of the firms when dividends are not paid
A: Information Provided: Cap rate = 10% Outstanding Shares = 10,000 Price (P0) = $100 Dividend = $5 Net…
Q: How will a company view working capital – positive, negative, or a necessary evil?
A: The difference between current assets and current liabilities is used to calculate working capital.…
Q: What do you meant by not for profit objective of the firm?
A: The sole purpose of any business organization is to earn profit. However, there are some…
Q: Is this statement true or false? Give a reason for your answer. " Relevant or not, frequent changes…
A: Dividend policy is a policy that determines the division of earnings into dividend and retained…
Q: Why would a company choose to factor itsreceivables, given that it will get less money than…
A: Sales means delivery of goods and services by the seller. It can be for cash sales or sales made on…
Q: Which one is more appropriate for cost of retained earning? A. Weighted Average cost of capital…
A: Retained earnings are the part of net income that is not distributed to the shareholders in form of…
Q: In the extractive industries, businesses may pay dividendsin excess of net income. What is the…
A: Dividends: This is the amount of cash distributed to stockholders by a company out its earnings,…
Q: Discuss how Floating and Fixed debentures affects the profitability of a business?
A: In floating debentures the interest rate of such debentures change will the level of changes... Such…
Q: What are some of the pros and cons of using stockoptions to compensate managers?
A: Employee stock options: Stock options are the non-monetary incentives that are given to particular…
Q: he level of financial risk to which a firm is exposed is dependent on the firm's: (a) tax rate (b)…
A: Financial risk can be defined as the risk of availing of finance and not being able to return it. It…
Q: Explain how differential weight to losses and gains effect investment decisions?
A: Prospect Theory assigns differential weight to losses and gains for making investment decisions.
Q: What are the best two measures for the profitability of firms that are not publicly traded?
A: Profitability, rate of return, as well as the pre-tax income are all metrics that would be used to…
Q: The wealth maximization objective of a firm is superior to its profit maximization objectives.Do you…
A: The primary objective of every firm is to maximize its profit. Wealth maximization is the broader…
Q: Discuss why the after-tax cost of equity (common or preferred) does not have to be adjusted by the…
A: Equity shareholders are considered as owners of the company and amount invested by equity…
Q: Under what assumptions market value of a company does not depend on its capital structure
A: One important concept in Modigliani and Miller theorem that market value does not depends on the…
Q: Why might a company hold low-yielding marketable securitieswhen it could earn a much higher return…
A: Introduction: Marketable security is a general word encompassing transactions that a company can…
Q: REQUIRED: ANSWER THE FOLLOWING QUESTIONS IN POINT FORM • What is the difference between book value…
A: We’ll answer the first question since the exact one wasn’t specified. Please submit a new question…
Q: How does Net Proft Margin, ROA, and ROE determine a firm's financial profitability?
A: Financial profitability refers to that financial situation of a company in which its revenues are…
Q: Can the retiring strategy of a firm jeopardize its profitability? Explain and provide examples of…
A: Retirement planning doesn’t mean one must most effective give attention to their finances.…
Q: How a firm splits its income between retained earnings and dividends does not affects its rate of…
A: Income is the revenue earned by the company after the charge of all the associated expenses. A…
Q: Firm may invest heavily, but that investment while producing earnings may not add value if operating…
A: The objective of establishing a company is to earn profits and grow wealth by selling one or a…
Q: Why is the application of fair value principle in measuring the financial position less objective…
A: the application of fair value principle in measuring the financial position is less objective than…
Q: In what way are profitability and efficiency related? How are profitability and liquidity related
A: The question explains about profitability and efficiency related and profitability and liquidity…
Q: market mispricing creates arbitrage opportunities, is this true and how. the actions of…
A: Mispricing causes a divergence between the market price of a security and the fundamental value of…
Q: on, what is the main problem with the dividend valuation models as compared to the free cash flow…
A: Dividend growth model is very good method but still has many problems.
Q: O c.Dividend Decision
A: In simple words, whenever a company makes any profit, it has two choices either to distribute them…
Q: The firm's cost of capital may also be referred to as the firm's opportunity cost of capital. True…
A: Firm's Cost of capital may be referred with different names.
Q: Although the equity method is a generally accepted accounting principle (GAAP), recognition of…
A: Equity Income This is the amount earned through stock dividends by investors on dividend-paying…
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- Which of the following best describes why the predicted incremental earnings arising from a given decision are not sufficient in and of themselves to determine whether that decision is worthwhile? ... O A. They do not tell how the decision affects the firm's reported profits from an accounting perspective. O B. They are not easily predicted from historical financial statements of a firm and its competitors. O C. They do not show how the firm's earnings are expected to change as the result of a particular decision. O D. These earnings are not actual cash flows.Short-term thinking can be disastrous for a business. What indicators are there to show that financial managers at Range take long-term approach to financial performance and control?Which one of the following characteristics of the positive accounting theory brings forward the problem of Opportunistic Behavior? Oa. It wants to minimize costs associated with contracts of the firm. O b. It recognizes the flexibility in choosing accounting policies by the firm. O c. It recognizes the existence of economic consequences in the firm. O d. It aims to maximize the prospects for survival of the firm.
- Which one of the following actions by a financial manager creates an agency problem? Lowering selling prices that will result in increased firm value Agreeing to expand the company at the expense of stockholders' value Borrowing money when doing so creates value for the firm Agreeing to pay management bonuses based on the market value of the firm's stockDiscuss why it is difficult to discern whether a firm does in fact practice earnings management.State whether the following statements are true or false. 8) Trade-Off between Risk-Return is the main principle to maximize the firm value. 9) Reduce inventory and use the proceeds to pay off a part of current liabilities will lead to increasethe quick ratio. 10) Unethical Behavior of the manager includes using the information that not available to the publicto make money.
- Which of the following is NOT related to (or contributes to) business risk? Remember that a company's activities have an effect on its business risk. Sales price variability. The extent to which operating costs are fixed. Demand variability. O Input price variability. O The extent to which interest rates on the firm's debt fluctuate.Explain what is meant by the term ‘financial distress’. If we assume that financial distress exists, explain how and why financial distress would cause a firm’s equity to become riskier.match the correct description with the correct term. Descriptions Terms The level and nature of risk attributable to a firm’s activities and operations, and ignoring the risks associated with the firm’s capital structure. Asymmetric information The situation in which outsiders, such as external shareholders, credits, suppliers, and customers have less and inferior information about a firm’s past, current, and future conditions and prospects, compared to the firm’s managers. Business risk The extent to which a firm’s cost structure contains a large proportion of fixed costs, which raises its level of business risk if the firm’s sales decline. Capital structure This practice of employing a large proportion of fixed-cost sources of financing, such as debt securities and preferred stock, exposes a firm’s stockholders to more business risk. EPS indifference point The ability of a firm to borrow money at a reasonable cost when good investment opportunities arise…
- What are the possible actions that a firm can take if it experiences a financial failure?Profit maximization pupose cannot be an ideal basis for making business decision because of _________ a. Focus only on Accounting Profits b. Failure to consider risk c. Lack of time dimension d. All of the aboveWhich of the following is true about earnings management? Group of answer choices A. It works outside the constraints of GAAP B. It works outside the constraints of GAAP and t tries to improve stakeholder’s views of the company’s financial position. C. It tries to improve stakeholder’s views of the company’s financial position. D. It works within the constraints of GAAP and it tries to improve stakeholder’s views of the company’s financial position.