The marginal value from the chosen project would be the crucial part of the cash flow. Whatever the profit would be from the project would be below the norm if using the accounting profits method. The amount would be less because of the depreciation that is considered a debt that would make a considerable larger expense for Caledonia. 2. What are the incremental cash flows for the project in years 1 through 5 and how do these cash flows differ from accounting profits or earnings?
Low income tax payments are why one-third of U.S. companies use LIFO (Harrison, Horgren, & Thomas, 2010). LIFO also gives the company the most realistic net income figure because the recent costs of inventory are expensed. FIFO would use the oldest costs of inventory which is not a realistic measure of the inventory expense. The ending inventory under LIFO would be lower, due to the highest prices being expensed. If the company wants to lower its income at the end of the accounting period, they would buy more inventory and the cost of that inventory could be used for cost of goods sold.
Two measures for evaluating a business's short-term liquidity are working capital and the current ratio. Working capital is the dollar amount of a company’s current assets less current liabilities as shown below: Working capital = Current assets - Current liabilities An excess of the current assets over the current liabilities implies that the company is able to pay its current liabilities. If the current liabilities are greater than the current assets, the company may not be able to pay its debts and continue in business. The current ratio is another means of expressing the relationship between current assets and current liabilities. The current ratio is computed by dividing current assets by current liabilities, as shown below.
Current account is the sum of the balance of trade (goods and services exports less imports), net income from abroad and net current transfers. Exchange rate is the value of one currency for the purpose of conversion to another. Investment is when you put (money) into financial schemes, shares, property, or a commercial venture with the expectation of achieving a profit. Consumption is when you spend in order to use a resource. Firstly, if consumption falls for foreign goods then this will better the current account deficit or improve the surplus.
It helps us to understand the relationship between the usage of money and the value of returns it provides from a particular venture or avenue based on the time it would take for providing the return and the future value of the return. Opportunity cost is economic decisions based on a limited resources i.e time or money. Opportunity cost is defined as the next best choice available for a person. Opportunity costs are not restricted to monetary costs only. Trade-off is the form of either buying less or a lesser quality item in order to purchase more or a greater quality item.
Above shows a monopoly diagram. The economic inefficiency is highlighted especially by the welfare loss to the consumer this is because between q0 and q1 the extra benefit of the unit (shown by the price) exceeds the extra cost. Therefore welfare
1) 2) 3) 4) Because of the existence of securities markets anomalies Because there could be indirect cash flow effects of accounting standard changes Because accounting policy changes affect the amount of income tax payable Because accounting changes reflect a move from historical cost to fair value b. Earnings management could be viewed as “opportunistic” or as an example of “efficient contracting,” depending on the goals of management. Which of the following settings reflects the efficient contracting aspect of earnings management? 1) Earnings management might help insolvent firms avoid immediate bankruptcy. 2) Earnings management might help credibly convey private information about the long-term earnings potential of the firm.
In this approach, the economic value of the assets of a company is the result of a multiple of its earnings: operating profit multiple or multiple of EBITDA. The multiple can be considered a multiple or a multiple stock transaction. It comes from the observation of the value of similar businesses. To obtain the value of equity, we subtract the value of the bank debt and net financial and possibly other elements.
olEvaluate the case for cutting public expenditure rather than raising taxes as a means of reducing fiscal deficits. (30) A fiscal deficit is when the government spends more than it receives in tax revenue. There are many benefits of cutting expenditure rather than increasing taxes. Firstly this will avoid any tax evasion and avoidance. This is because when taxes are increased a smaller amount of income is retained giving people the incentive to declare lower incomes to the HMRC so that they fall into a lower tax bracket.
NPV is sensitive to discount rate as the computations are a summation of multiple discounted cash flows. As a consequence, a little decrease or increase in discount rate will affect the final output much. Payback Period (PP) calculates how long the future cash flow to cover the initial investment. The only advantage is that PP is easy to understand. The criterion for acceptance is the least time of PP as this method has a bias towards liquidity.