If it did, how did the firm invest its excess cash? 6. If not, what were the sources of cash the firm used to pay for the capital expenditures and/or dividends? Sources of cash used to pay for capital expenditures and/or dividends are proceeds from long-term debt and short term borrowings. 7.
There are two approaches for presenting the operating activities direst method and indirect method. Direct method reports the components of cash flow from operating activities as gross receipts and gross payments. The indirect method starts with the net income from the income statement and then eliminates noncash items to arrive at net cash inflow and outflow from operating activities. Investing activities include (a) purchasing and disposing of investments and productive long-lived assets using cash, (b) lending money, and collecting the loans. Cash flow from investing activities is cash inflows and outflows related to the purchase and disposal of long-lived productive assets and investments in the securities of other companies.
b. prove that revenues exceed expenses if there is a net income. c. provide information about the cash receipts and cash payments during a period. d. facilitate banking relationships. 5. If a company reports a net loss, it a. may still have a net increase in cash.
REAL OPTIONS AND THEIR INCORPORATION WITHIN CAPITAL BUDGETING A real option is a form of derivative, similar to a forward contract, but with a couple of important differences. A real option infers the right, but not an obligation, to buy an underlying real asset. The holder of a real option will compare the market value of the asset in question, along with the agreed exchange value on the option and can then decide whether to exercise that option or tear it up. This flexibility can come at considerable cost, which we will examine in the next section. The process of capital budgeting focuses on the incremental increase in cash flows associated with an investment decision or investment project.
The amount of cash, or its equivalent, that could be obtained by selling an asset in an orderly liquidation. Net Realizable Value Method. The amount of cash, or its equivalent, into which an asset is expected to be converted in the due course of business, less any direct costs necessary to make that conversion. Discounted Future Cash Flows Method. For an asset: the present value of future cash inflows into which an asset is expected to be converted in the due course of business, less present values of cash outflows
The cost of capital is rate of return required by a capital provider in exchange foregoing an investment in another project, assets or business with similar risk. For that reason, it is also known as an opportunity cost. For investors, the rate return on a security is a benefit of investing. But for financial managers, the same rate of return is a cost of raising fund that is needed to operate the firm. In other words, the cost of raising fund is the firm’s cost of capital.
It refers to gains and losses that may be incurred, when monetary transactions are settled in a foreign currency. Le ctu Pr of. re Az by ar m i Example of transactions exposure? -A company buys (or sells) on credit a product that is priced in a foreign currency. -A firm borrows (or lends) in a foreign currency.
Market institutions are not necessarily basic to a society. Furthermore, a market may not be the ways in which people go about accumulating wealth. The market had become one of the ways in which a particular society acquires the production that it needs and allocates that production among the various groups in the society. The market is simply a rationing device. The significant difference between a market operation and the other methods of rationing is that the latter deal with real wealth, while markets deal with money wealth.
The two main method of recording accounting transaction are cash basis and accrual basis accounting. Cash basis and accrual basis have their advantages and disadvantages, but only one method is approved by Generally Accepted Accounting Principles (GAAP).The difference between accrual and cash basis accounting has to do with the time frame in which revenues and expenses are recorded and reported. Accrual basis accounting matches revenues to the time period in which they are earned and matches expenses to the time period in which they are incurred. The accrual basis allows the business to track receivables (amounts due from customers on credit sales) and payables (amounts due to vendors on credit purchases). Accrual basis on accounting is the method of accounting that most business and professionals are required to use by law because of its matching principles.
They typically use this method because it requires fewer journal entries for closing an accounting period and creating financial statements. I feel this method only gives the owner or company a view on the cash coming in and out but does not give the company a long term view on the overhead cost and revenue for services in order to show the company where improvements can be made or where costs