# Accounting Essay

1209 Words5 Pages
.Which of the following statements is NOT correct? èThe corporate valuation model discounts free cash flows by the required return on equity. 2. Which of the following statements is correct?) If a project with normal cash flows has an IRR greater than the WACC, the project must also have a positive NPV. 3. The Ackert Company's last dividend was \$1.55. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm's required return (rs) is 12.0%. What is the best estimate of the current stock price? a. \$37.05 Calculations: Year 1 dividend 1.55*1.015= 1.57325 Year 2 dvidend 1.57325 *1.015= 1.5968 Stock price after year 2 1.5968*1.08/(.12-.08)= 43.11. So current stock price will be these amounts discounted back to the present at the 0.12 rate of return. 1.57325/1.12 +1.5968/1.12^2 +43.11/1.12^2= 37.05 4. (TCO G) The Chadmark Corporation's budgeted monthly sales are \$3,000. In the first month, 40% of its customers pay and take the 2% discount. The remaining 60% pay in the month following the sale and don't receive a discount. Chadmark's bad debts are very small and are excluded from this analysis. Purchases for next month's sales are constant each month at \$1,500. Other payments for wages, rent, and taxes are constant at \$700 per month. Construct a single month's cash budget with the information given. What is the average cash gain or (loss) during a typical month for the Chadmark Corporation? Current month sales collected: 3000 x 40% x (100%-2%) = \$1176 ADD: Prior month sales collected: 3000 x 60% = \$1800 LESS: purchases \$1500 LESS: other expenses \$700 = \$776 average cash gain during a typical month. 5. (TCO G) Clayton Industries is planning its operations for next year, and Ronnie Clayton, the CEO, wants you to forecast the