Accrual basis accounting records the transaction immediately in a type of account, such as accounts payable, money owed to other companies for services; or accounts receivable “money owed by its debtors” ("Google.com", 2012). Later when the business pays out or is paid; they perform a balance by debiting one account and balancing by credit the corresponding and opposite account. Tracking the relationship between purchase and sale easier, something cash basis accounting fails at. In general, accrual basis accounting is preferred at tax time and for medium to large business. The classic example is expense.
The company regularly calculated “warranted equity value” for its common shares and repurchased its stock whenever the market price fell substantially below that value. The cost of capital for Marriott and for each of the three divisions individually could differ in each of the divisions resulting in varying cost of capital. In order for Marriott to only invest in a project, the internal rate of return (IRR) needs to be greater than the hurdle rate. To accurately determine the opportunity cost of capital. We will apply the cost of capital as the hurdle rate to discount future cash flows for the investment projects of the firm’s three divisions.
Banks have a reserve requirement, which is set by the fed. A reserve requirement is the minimum percentage of a bank’s total reserves that they are required to keep, for security reasons. (Schiller) The fed can change the reserve requirement to allow a bank to loan more/less money, which is used to control the economy. Many critics use this to determine that annual deficit spending has a negative impact on the economic stability of our country. The fed has to set a lower reserve requirement, which allows banks to loan out more money, which generates more interest, which could lead to periods of inflation and could have worse consequences if the government does not react quickly enough.
Because the needs for accurate and clear measure of exposure to market volatilities. In the wake of such financial disasters such as Orange County, Barings, Daiwa and Showa Shell, banks and financial service firms recognized the need for accurate, clear measures of exposure to market volatility. The risk management tool known as value-at-risk, or VaR, grew out of this daily report. VaR attempted to answer the question of “how much can I lose with a 95% confidence” using simple mathematical concepts of variance and
For instances, company can choose cost model or revaluation model for property, plant, and equipment. The inventory must be measured at the lower of cost or net realizable value. In addition, according to Mautz (1973), it stated that if who rely on the financial report that measured on historical cost to make decision, found that the information is not useful, then the accounting method will change since it have been made. However, during the times of rising prices, the historical cost accounting has limitations. This is because according to Elliot (1986), it stated that historical cost assumes money holds a constant purchasing power.
If a fund has 100 percent turnover rate that means the fund manager, in theory has sold every single stock position once. Portfolio turnover is an important component to assess the management style of a fund. Each trade (buy/sell) costs brokerage commissions, even though mutual funds pay lower commissions than individual investors, it was observed that brokerage costs can account for 0.5% to 2% assets managed; smaller funds with high rates of portfolio turnover have higher costs. For tax purposes, brokerage commissions are considered as “capital costs” as they are considered part of the cost of the securities purchased and hence are not part of the Management Expenses Ratio. Trading expenses, which include brokerage
Question 2 of 100 (2B5-LS53) Flag for Review A manufacturer with seasonal sales would be most likely to obtain which one of the following types of loans from a commercial bank to finance the need for a fixed amount of additional capital during the busy season? *Source: Retired ICMA CMA Exam Questions Insurance company term loan. Transaction loan. Unsecured short-term term loan. Installment loan.
Question 1: The Northern Rock case demonstrates that financial regulators should not view modern banking separately from capital market developments. A) Describe the liquidity spiral at work in the Northern Rock case Liquidity spirals are loss spirals which start as a result of deprecation of asset value whereby the net value decreases faster than the gross value (because of their leverage). Assuming a constant leverage ratio, the drop in value of the asset will force the company to either raise more capital (not likely if the market is already tight) or to sell assets at a time when the prices have already dropped. The selling of the assets will push the prices down further which will inevitably result in more sales. The financial institutions’ capital erodes and, at the same time, lending standards and margins tighten.
Accomplishing both of these would require an increase in long-term debt of about $1.8million dollars based on calculating Alliance’s external financing need. The investment of the $16million in capital expenditures should be given priority as the potential cost and loss of sales due to a failure of Alliance’s fixed assets would serve to erode the value of Alliance to its owner National as well as make Alliance a greater credit risk for the institutions who own its outstanding debt. An example of the type of financial harm that could be caused by a malfunction of Alliance’s plant and equipment was demonstrated in 2004 when Alliance experienced an earnings decline of nearly 6.5% despite revenues increasing by over
It was used originally as leveraged buyout investors examined distressed companies that needed financial restructuring. They used EBITDA to calculate quickly whether these companies could pay back the interest on certain financed deals. It quickly evolved into a tool to determine whether a company could pay back its debt in the near term. Because EBITDA helps measure the company’s underlying profit, banks and other sources of capital tended to use EBITDA when determining how much money they could