INTERMEDIATE ACCOUNTING II/ Intermediate Accounting, Spiceland/Sepe/Nelson Re: Judgment Case 18-5 Requirement 1. The two alternatives Alcoa has for accounting for the repurchase of it’s shares are: 1) The shares can be formally retired. 2) The shares can be named treasury stock Either way, total shareholders’ equity remains the same. Cash is used to repurchase common stock so the effect is to reduce both cash and shareholders’ equity. This choice does, however, affect how individual shareholders’ accounts are reported in the balance sheet.
TAX RATES AND CORPORATE CAPITAL STRUCTURE The magnitude of the effective tax advantage of debt has important implications for corporate financial behavior. One issue, which has been examined extensively in corporate finance literature, is whether the value of a company is affected by the company’s leverage ratio. DeAngelo and Masulis1 have shown that financing decisions can affect the value of the firm if the effective tax advantage to debt finance varies or is reduced by the presence of non-debt tax shields such as investment allowance and depreciation deductions. In Indian companies, the effective tax rate is an important determinant for the amount of debt they can avail. Hence there has to be a definite relationship between debt and effective tax rate for the companies.
THE IMPACT OF HOSTILE TAKEOVER IN JAPAN Introduction According to corporate finance theorists, the objective of the firm should be to maximise value or wealth. This means for stockholders to maximise stock prices. By focusing on maximising stockholder wealth, the firm exposes itself to the risk that managers, who are hired to operate the firm for stockholders, may have their own objectives. This can lead to conflicts between both parties. Stockholders then have the power to discipline and replace managers who do not attempt to maximise their wealth.
You will be introduced to Monte Carlo analysis and you will use this to decide on the optimal capital structure for Diageo. Learning Objectives The static trade-off theory of capital structure is one of the models used to determine the optimal capital structure. While tax shield are well understood, the sources and costs of financial distress, particularly in a dynamic setting, is less understood. This case studies the capital structure decision of a firm that is undergoing fundamental changes in the business. The heart of the case is a model that is developed by the firm’s corporate treasury staff to help them think about the static tradeoff of tax shields and financial distress in a dynamic setting.
FIN 921 Tutorial solutions - Week 2 Autumn 2012 Chapter 1 Answers to Critical Thinking and Concepts Review Questions *1.3. Corporations. What is the primary disadvantage of the corporate form of organisation? Name at least two of the advantages of corporate organisation. Solution: The primary disadvantage of the corporate form can be the agency problem or the double taxation to shareholders of distributed earnings and dividends for some shareholders.
For example, dividing the net profit before interest and tax by sales, we can calculate the return on sales (profit margin). With the help of balance sheet, we can also calculate the return on capital employed and the asset turnover. Through calculating the profitability ratio of a company, we can assess the financial performance of a company easily, especially for the large or international company. Except of calculating the profitability ratio, comparing with the cash flow statement, the profit and loss account is more relevance, which matches the revenues and the expenses within the same period. For example, we will use one of the depreciation methods to dividing the long-term fixed cost into different periods.
Managerial Accountants should calculate net income or loss in a manner that accurately reflects the closest true costs and profits as determined by the International Federation of Accountants (IFA). To effectively help Management Accountants do this, the IFA has set in place a code of conduct that should regulate the integrity, competence, confidentiality, and credibility of a corporation. Introduction To fully understand the ethical issues of Managerial Accounting, you must first assess the difference between Managerial Accounting and Financial Accounting. Financial accounting is used for to present the status of the company to external sources such as board of directors, investors, auditors, and for reporting purposes as well. The financial side of accounting is used to represent the company’s current standing based on the past profits, net income, bad debts, and current ratio of assets to liabilities.
However, taxes influence incentives and thus the behavior of economic actors and the competitiveness of an economy. The level of taxation is measured by tax revenue as a share of the gross domestic product (GDP). Investors wishing to put up their investments in a country or region must first determine the effect of tax policy of
I. The concept of political risk * Definition of political risk * Sources of political risk II. Management of political risk A. Assessment of political risk * Subjective approach’s * Grand tours * Old hands * Delphi techniques * Objective approach’s * multivariate analysis MVA * Political risk indicators * General risk indicators * Partial risk indicators B. Monitoring political risk * Bayes’s rule C. Integrating political risk in international capital budgeting * The approach of Shapiro (adjusting cash flows) * The approach of Clark Ephraim * The approach of Mahajan The concept of political risk Studies of the evolution of corporate finance suggests that international companies started to focus on dealing with many kinds of risks including political risk since before the first world war, the concept of political risk has passed through some developing phases as a consequence of witnessing many political events as Expropriation and nationalization, political instability, summing up those phases as follows: -1960’s “the period of banalization of political risk” Just not paying to much attention on clarifying or determining the probable risk -1970’s “the period of consciousness” Main sources of political risk where motivated by ideological views; nationalism and Marxism -1980’s “the period of scientification and professionalization” The birth of the quantitative risk assessment methods the probabilistic interpretation of political risk and the systematic use of these quantitative approaches -1990’s “the period of scientific refinement” The contribution of other fields of research; political science, sociology, decision theory, etc...
Actual income statements show what actually happened to revenues, costs, and profits during a period according to the GAAP principles. There are also pro forma and non-GAAP income statements. Pro forma means that the income statement is a projection. The income statement is divided by three parts, at the top line it has the revenues or sales, at the middle line, it has the costs and expenses and at the bottom line it has the profits or loses. When someone is looking at any income statement it’s essential to take a look to the footnotes because in there you can see how the accountants arrived to the totals.