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Finance
Clean Air Anti-Pollution Company is suffering declining sales of its principal product, nonbiodegradable plastic cartons. The president, Dixon Nuber, instructs his controller, Gavin Wood, to lengthen asset lives to reduce depreciation expense. A processing line of automated plastic extruding equipment, purchased for $3.5 million in January 2011, was originally estimated to have a useful life of 8 years and a salvage value of $400,000. Depreciation has been recorded for 2 years on that basis. Dixon wants the estimated life changed to 12 years total and the straight-line method continued. Gavin is hesitant to make the change, believing it is unethical to increase net income in this manner. Dixon says, “Hey, the life is only an estimate, and I’ve heard that our competition uses a 12-year life on their production equipment.”
Instructions
(a) Who are the stakeholders in this situation?
(b) Is the proposed change in asset life unethical, or is it simply a good business practice by an astute president?
(c) What is the effect of Dixon’s proposed change on income before taxes in the year of change?
Instructions
(a) Who are the stakeholders in this situation?
(b) Is the proposed change in asset life unethical, or is it simply a good business practice by an astute president?
(c) What is the effect of Dixon’s proposed change on income before taxes in the year of change?
Finance
Clean Air Anti-Pollution Company is suffering declining sales of its principal product, nonbiodegradable plastic cartons. The president, Dixon Nuber, instructs his controller, Gavin Wood, to lengthen asset lives to reduce depreciation expense. A processing line of automated plastic extruding equipment, purchased for $3.5 million in January 2011, was originally estimated to have a useful life of 8 years and a salvage value of $400,000. Depreciation has been recorded for 2 years on that basis. Dixon wants the estimated life changed to 12 years total and the straight-line method continued. Gavin is hesitant to make the change, believing it is unethical to increase net income in this manner. Dixon says, “Hey, the life is only an estimate, and I’ve heard that our competition uses a 12-year life on their production equipment.”
Instructions
(a) Who are the stakeholders in this situation?
(b) Is the proposed change in asset life unethical, or is it simply a good business practice by an astute president?
(c) What is the effect of Dixon’s proposed change on income before taxes in the year of change?
Instructions
(a) Who are the stakeholders in this situation?
(b) Is the proposed change in asset life unethical, or is it simply a good business practice by an astute president?
(c) What is the effect of Dixon’s proposed change on income before taxes in the year of change?
Finance
Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 16% for the next 4 years, after which competition will probably reduce the growth rate in earnings and dividends to zero, i.e., g = 0. The company's last dividend, D, was $1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock?
a. $18.35
b. $21.01
c. $22.11
d. $16.81
e. $17.03
a. $18.35
b. $21.01
c. $22.11
d. $16.81
e. $17.03
Finance
Discuss how senior management’s short-term focus on stock price in a publically traded company can lead to unethical behavior
Finance
Suppose a firm relies exclusively on the payback method when making capital budgeting
decisions, and it sets a 4-year payback regardless of economic conditions. Other things held
constant, which of the following statements is most likely to be true?
decisions, and it sets a 4-year payback regardless of economic conditions. Other things held
constant, which of the following statements is most likely to be true?
Finance
The One Product economy, which produces and sells only
personal computers (PCs), expects that it can sell 500 more, or 12,500
PCs, next year. Nominal GDP was $20 million this year, and the
money supply was $7 million. The central bank for the One Product
economy plans to increase the money supply by 10 percent next year.b. What is the expected average selling price next year for
personal computers if the velocity of money remains at this
year’s turnover rate? What percentage change in price level is
expected to occur?
c. If the objective is to keep the price level the same next year
(i.e., no inflation), what percentage increase in the money
supply should the central bank plan for?
d. How would your answer in (c) change if the velocity of money
is expected to be three times next year? What is it now?
personal computers (PCs), expects that it can sell 500 more, or 12,500
PCs, next year. Nominal GDP was $20 million this year, and the
money supply was $7 million. The central bank for the One Product
economy plans to increase the money supply by 10 percent next year.b. What is the expected average selling price next year for
personal computers if the velocity of money remains at this
year’s turnover rate? What percentage change in price level is
expected to occur?
c. If the objective is to keep the price level the same next year
(i.e., no inflation), what percentage increase in the money
supply should the central bank plan for?
d. How would your answer in (c) change if the velocity of money
is expected to be three times next year? What is it now?
Finance
what do i write in a report of GSWAN case study of IIM
Finance
The Nantell Corporation just purchased an expensive piece of equipment. Assume that the firm planned to depreciate the equipment over 5 years on a straight-line basis, but Congress then passed a provision that requires the company to depreciate the equipment on a straight-line basis over 7 years. Other things held constant, which of the following will occur as a result of this Congressional action? Assume that the company uses the same depreciation method for tax and stockholder reporting purposes.
Answer
Answer
Finance
For managerial purposes, i.e., making decisions regarding the firm's operations, the standard financial statements as prepared by accountants under Generally Accepted Accounting Principles (GAAP) are often modified and used to create alternative data and metrics that provide a somewhat different picture of a firm's operations. Related to these modifications, which of the following statements is CORRECT?
The standard statements make adjustments to reflect the effects of inflation on asset values, and these adjustments are normally carried into any adjustment that managers make to the standard statements.
The standard statements focus on accounting income for the entire corporation, not cash flows, and the two can be quite different during any given accounting period. However, for valuation purposes we need to discount cash flows, not accounting income. Moreover, since many firms have a number of separate divisions, and since division managers should be compensated on their divisions’ performance, not that of the entire firm, information that focuses on the divisions is needed. These factors have led to the development of information that is focused on cash flows and the operations of individual units.
The standard statements provide useful information on the firm’s individual operating units, but management needs more information on the firm’s overall operations than the standard statements provide.
The standard statements focus on cash flows, but managers are less concerned with cash flows than with accounting income as defined by GAAP.
The best feature of standard statements is that, if they are prepared under GAAP, the data are always consistent from firm to firm. Thus, under GAAP, there is no room for accountants to “adjust” the results to make earnings look better.
The standard statements make adjustments to reflect the effects of inflation on asset values, and these adjustments are normally carried into any adjustment that managers make to the standard statements.
The standard statements focus on accounting income for the entire corporation, not cash flows, and the two can be quite different during any given accounting period. However, for valuation purposes we need to discount cash flows, not accounting income. Moreover, since many firms have a number of separate divisions, and since division managers should be compensated on their divisions’ performance, not that of the entire firm, information that focuses on the divisions is needed. These factors have led to the development of information that is focused on cash flows and the operations of individual units.
The standard statements provide useful information on the firm’s individual operating units, but management needs more information on the firm’s overall operations than the standard statements provide.
The standard statements focus on cash flows, but managers are less concerned with cash flows than with accounting income as defined by GAAP.
The best feature of standard statements is that, if they are prepared under GAAP, the data are always consistent from firm to firm. Thus, under GAAP, there is no room for accountants to “adjust” the results to make earnings look better.
Finance
What impact does current fiscal and monetary policy's have on the economy?
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#332078 on Oct 2022
#332078 on Oct 2022