It paints a bad picture because the business may collect zero revenues for a month and pay accounts payable during that month showing a loss of revenue while the next month they may pay zero accounts payable but receive two month’s worth of accounts payable, this would indicate that the company had higher than realistic earnings. Accrual basis accounting paints a better picture of how a company profits or losses over a indicated time period, but fails to state clearly the cash on hand. E3-2B (b) Why would politicians prefer the cash basis over the accrual basis? The Government prefers to use the cash basis over the accrual basis for many reasons but none more the how to account for public unions workers’ pensions. The Government does not want to report their pensions while the employee is working because politicians believe that benefits
An amortization rate of 40% (for so short a period of use) seems very much full of determination in depressing profits and creating more expenses to minimize payouts to Baaz. The straight-line method shouldn’t be changed at all. Although the company has taken full year’s amortization on equipment in the first year before, I believe that half year’s amortization is more appropriate here. Further, prorating the months the equipment was in
However, even with this change in values, the company is still under its breakeven point. The new breakeven point, with a 10% decrease in average prices and an increase in units sold to 14000, would be equal to 14,945 units and $10,297,105. 3) Gretchen’s idea to eliminate sales commissions, morally, may not be the correct decision because it works in a way to motivate the sales people. Without this commission, in the
The advantages of this are that the cost is spread over the life time of the asset, and you don’t have to find the money for the asset in one lump sum. The disadvantages are that it may eventually cost you more than if you were just to buy it, and you would never actually own the asset and will not appear on your balance sheet. You could get a government backed start up business loan. There are many out there so take a look at the interest rates and repayment plans. These types of loans are not just backed and
Social Security is an immense problem. But the problem is not the cash outflow of benefits draining the economy; it is political risk, and structural inefficiency. The political risk is that whatever the economic theory, we will not politically be able to continue benefits at planned levels. People who counted on those benefits will thereby be made much worse off, because they will have saved too little on the assumption that the benefits would be there. The structural inefficiency arises because Social Security encourages people to retire as early as possible.
| | | Student Answer: | | It is generally more expensive to form a proprietorship than a corporation because, with a proprietorship, extensive legal documents are required. | | | | Corporations face fewer regulations than sole proprietorships. | | | | One disadvantage of operating a business as a sole proprietorship is that the firm is subject to double taxation, at both the firm level and the owner level. | | | | One advantage of forming a corporation is that equity investors are usually exposed to less liability than in a regular partnership. | | | | If a regular partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business.
Q1) Cohen calculated the WACC to be 8.4%, which we don’t agree. The reasons are as follows: Single/Multiple cost of capital: We think a single cost of capital is sufficient because divisions of Nike have similar risk profiles. Weights: We don’t agree with Cohen’s calculation of book value weights. The weights should be calculated with market value of debt and equity because cost of capital shows how much the investors are willing to pay at present, i.e. at market value.
b. Determine the indicated return on investment if help were hired to operate the station. c. Why is there a difference between the rates of return in (a) and (b)? There is a difference because in problem (a), there was no expense of a $10,000 for help hired to operate the station. However, in problem (b), this is deducted which actually lowers the taxable income and taxes.
4) Good luck! Part I (45 points): Short questions. Either fill in the blanks or mark something as True or False (no need to show calculations here). (1) The two main reasons why acquiring firms’ shareholders do not benefit much from acquisitions are that the acquirer: (2 points) The synergy benefit is over estimated during acquisition process Underestimate importance of “culture compatibility” (2) Suppose during a particular year a firm has a NOPAT of $400, increase in Net Fixed Assets of $50, increase in cash balances during the year of $20, and an increase in noncash net working capital of $45. What is this firm’s free cash flow for the year?
What steps do you recommend the company take? Base your forecasts on the 1996 performance. • Finance it through debt; it has so little and is a big company by this point. But don’t take too much, still achieve a DPO reduction so that the debt is minimal • No, it will not be possible. • Would need to reduce working capital by $260M • Would need to increase gross margins by 328bps • If growth is so important, then a price raise would likely slow that.