b. The value of equity is calculated by discounting the horizon value, the tax shields, and the free cash flows at the cost of equity. c. The value of operations is calculated by discounting the horizon value, the tax shields, and the free cash flows before the horizon date at the unlevered cost of equity. d. The value of equity is calculated by discounting the horizon value and the free cash flows at the cost of equity. e. The APV approach stands for the accounting pre-valuation approach.
Describe the Internal Rate of Return (IRR) method for determining a capital budgeting project's desirability. What is the acceptance benchmark when using IRR? This is the most favored method in use, it works well in situations where cash flows are considered to be normal and
2. Efficient Market - Efficient market is one where the market price is an unbiased estimate of the true value of the investment. Depending on the form, the efficient market can show how the securities market reflects prices. 3. Primary Market – Primary market is where new securities are bought and sold for
• A financial asset is considered to have value if it has the ability to generate positive cash flows. • A financial asset is considered to have value if it is acquired at its market value • A financial asset is considered to have value if it is acquired a its book price. When determing the value of a firm, which of the following statements is true? • The timing of cash flows a firm can generate is very important in determing the value of a firm. All else being equal, cash received sooner is better.
Liquidity Ratios Liquidity ratios provide information about a firm's ability to meet its short-term financial obligations. The current ratio is the ratio of current assets to current liabilities: Current Ratio | = | Current Assets | | Current Liabilities | | * Interpretation: Current ratio comes from total assets divided by current liabilities. Current assets include cash, accounts and notes receivable (less reserves for bad debts), advances on inventories, merchandise inventories, and marketable securities. This ratio measures the degree to which current assets cover current liabilities. The higher the ratio the more assurance exists that the retirement of current liabilities can be made.
1. Provide the definitions of throughput, inventory and operational expense given in The Goal. How do they compare with the traditional definitions? Do you find them useful, and why? Throughput is the rate at which the system generates money through sales while inventory is all the money that the system has invested in purchasing things which it intends to sell.
Another difference between them is the time on how they can be turned into cash at a faster rate. What is the order of liquidity? Liquidity in terms of accounting means how soon or how fast an asset can be turned into cash to comply and maintain its current financial obligations toward service and material suppliers. Order of liquidity refers to the way the assets are recorder in a balance sheet in descending order of liquidity beginning with cash, current assets- accounts receivable and inventory . The common methods of a chart of accounts include Accounting types – assets, liabilities, equity, revenue, expenses and revenue, followed by order of liquidity, and the account numbers.
As for the balance sheet, it shows the assets, liabilities, and stockholder’s equity for a specified date. The balance sheet reflects the organization’s financial position. The total assets within the balance sheet must equal the total liabilities and stockholder equity. The statement of cash flow states the cash inflows as well as outflows from the operating, financing, and investing transactions during a specific period. It reports the organization’s beginning and ending cash, investing and financing
The direct method is relies on changing the contractual characteristics of Asset and Liabilities to reach a particular duration and maturity gap to get over any Asset and Liability mismatch. On other hand the synthetic method relies on using derivatives such as interest rate swaps, future, options and other customized instruments like AIRS. Since the direct method is not always possible using the synthetic method give higher degree of flexibility to Asset –Liability management process. Banc one can use the following financial instruments ( off –balance sheet) to hedge against interest rate risk : • Futures : is an agreement between buyer and seller to exchange a specific amount of financial products at a specific price in a specific future date. The management must be very careful to follow the regulatory and the accounting rules that govern the use of future contract.
Integrity means being trustworthy, reliable, and decent in our dealings with others. It means being true to ourselves. When we are guided by integrity our actions align with our principles; our thoughts and words are in sync with each other. It becomes the basis for our reputation as well as our self-esteem. Integrity does not mean being perfect, but rather having high moral principles and being trusted in our actions as well as our words.