Chapter 15- 16 Critical Thinking Questions

Contingent situation is a potential negative event that may occur in the future, such as economic recession, natural disaster, fraudulent activity, or a terrorist attack. Contingencies can be prepared for, but often the nature and scope of such negative events are unknowable in advance. Companies and investors plan for various contingencies through analysis and implementing protective measures. Describe how accountants may help to mitigate the impact of these risks on profitability? (350 words)

Mr. Abdullah is an auditor in XYZ LLC. His job is to see the correctness of financial statements and to give suggestions. He came to know that his company is entering into a new product line, so he started discussing about it on various places and about its projection in the future. In this situation there is a chance of _________________. a. None of the options b. Familiarity threat c. Self review threat d. Advocacy threat Clear my choice

You are an investor who is looking for a place to invest your money. Previous investments have led you to feel that you are only interested in public, unregulated companies. You must choose a company that has not been used in previous course work, where you will now invest your money. Based on publicly available information you are to do a complete strategic analysis of the company. Tips: Clothing companies do not make good choices because their reporting dates do not match standard reporting of economic data. The result of your research will be your opinion, backed by your analysis, and use of evidence (use 6th edition APA) and reasons why you would personally invest in this company as well as why people wish to be employed at this company. What makes it attractive to employees? You may think of this as an evaluation of the firm for investment purposes. Ensure that you select a company that has data available for conducting the needed analyses. Do due diligence right at the beginning…

Explain in full detail why the following statement is false:   "Financial managers should not focus on the present stock value of the company. Instead, they should focus on the profitability of the company. Doing so will result in increasing the value of the stock.

Provide an explanation of the impact of external factors on the financial position of your selected company. Use the Interest Rates Spreadsheet to demonstrate the implications of interest rate changes on at least one. Specifically, the following critical elements must be addressed: Macroeconomic Items: The CEO of your selected company is convinced that financial analysis should hinge only on what is happening internally within the company. Convince the CEO otherwise based on the following: Analyze the implications of interest rate changes on any of your calculations. Support your claims. Determine how an issue in the overall stock market—negative or positive—might impact the company’s stock valuation numbers, other financial variables, or its overall portfolio management. Support your response with evidence through research, references, and citations. Analyze the impact of any external factor of PepsiCo. discussed throughout the course on the company’s financial position.…

You are the founder of IGRO, an Internet firm that delivers groceries. a. Give an example of an idiosyncratic risk and a systematic risk your company faces. b. As founder of the company, you own a significant portion of the firm, and your personal wealth is highly concentrated in IGRO shares. What are the risks you face, and how should you try to reduce them? c. Given your answer to part b, do you think it is a good idea for lower level employees to have large amounts of stock in their savings when that stock is issued by their employer? Is there an upside, as well as a downside?

2 (a)There is a conflict of interest between stockholders and managers. In theory, stockholders are expected to exercise control over managers through the annual meeting or the board of directors. In practice, why might these disciplinary mechanisms not work? (b)There are some corporate strategists who have suggested that firms focus on maximizing market share rather than market prices. When might this strategy work, and when might it fail? (c)It is often argued that managers, when asked to maximize stock price, have to choose between being socially responsible and carrying out their fiduciary duty. Do you agree? Can you provide an example where social responsibility and firm value maximization go hand in hand?

Assuming you have done the financial ratio analysis and you have realized that profitability is looking good but liquidity is not impressive and needs urgent attention. What do you think could be the problem with CONCAVE Ltd. that your company needs to help them address?

You are considering an investment in a new start-up company, Giraffe Inc., an Internet service provider. A review of the company’s financial statements reveals a negative retained earnings. In addition, it appears as though the company has been running a negative cash flow from operating activities since the company’s inception.How is the company staying in business under these circumstances? Could this be a good investment?

Managers often complain that the stock market is short-sighted and focused on accounting earnings. In your post, make a case to convince your manager that this view is either true or not true.

a) New ventures and a lot of SMEs risk losing their business operation in the name of 'finance gap' which arises as a result of some information asymmetry that exists between lenders and borrowers. The existence of information may lead to adverse selection and moral hazard. Using practical examples, explain the terms highlighted. b) Discuss the term 'Venture capital financing' c) You have received an appointment to assist in the management of KFC Incorporated in its capital restructuring to be able to meet the global clientele it has for decades now. As a Corporate Country Director per your appointment, outline some major sources of debt financing that had help build the capital structure of KFC to still be in fully operation and with more expansion across the globe.

Seeking to maximise the current year’s profit is not a sensible objective for most businesses for several reasons. Which is the only one of the following that is not such a reason? Group of answer choices It can be achieved by increasing the number of shareholders. It ignores wealth generation. It ignores risk. It ignores longer term profitability.

You have been the finance director of a clothing company. You have recently been advised by the store manager of slow moving stock (inventory) which would normally have been written down ( reduce value) thus reducing the value of overall Inventory(stock). Managing director wants the financial statements to carry an inflated stock valuation (higher stock valuation ) because he has found a buyer for the company and wants to the sell the company. The managing director has indicated to you that, if the deal ( to sell the company) is successful, all employees will keep their jobs and you will receive a pay increase (higher salary) Which key Fundamental principles of professional ethics is affected and what is the most relevant threats? You cannot simply do what has been asked of you, because the principle of integrity requires a professional accountant not to be associated with information that they believe to be false or misleading. A Self-review threats to your objectivity arises…

Which of the following is an example of “cookie jar” accounting?  a) A company creates cash reserves in profitable years so the money can be used to offset poor earnings in bad years to give the impression that the company is consistently achieving earnings goals and meeting investor expectations. b)A company intentionally misapplies GAAP and, if caught, argues that the earnings effect is “immaterial” and the error is not worth correcting. c)A company takes a one-time charge against income in order to reduce assets, which results in lower expenses in the future. d) A company recognizes revenues before it is appropriate to do so.

Which one of the following actions by a financial manager creates an agency problem?   Lowering selling prices that will result in increased firm value   Agreeing to expand the company at the expense of stockholders' value   Borrowing money when doing so creates value for the firm   Agreeing to pay management bonuses based on the market value of the firm's stock

The SEC is trying to get companies to notify the investment community more quickly when a "material change" will affect their forthcoming financial results. In what sense might a financial manager be seen as "more ethical" if he or she follows this directive and issues a press release indicating that sales will not be as high as previously anticipated?  A manager at a "Check Into Cash" business (see Focus on Ethics box on page 192) defends his business practice as simply "charging what the market will bear." "After all," says the manager, "we don't force people to come in the door." How would you respond to this ethical defense of the payday-advance business? Bond rating agencies have invested significant sums of money in an effort to determine which quantitative and nonquantitative factors best predict bond defaults. Furthermore, some of the raters invest time and money to meet privately with corporate personnel to get nonpublic information that is used in assigning the issue's bond…

Which of the following statements is(are) true about ESG? Select one or more: a. ESG is an important consideration in financial decisions as it provides a positive impact for long-term success for corporates through “Risk Reduction”. b. ESG is an important consideration in financial decisions as it provides positive impact for long-term success for corporates through “Fiscal policy”. c. ESG is an important consideration in financial decisions as it provides positive

Which is the best explanation of how dividends could convey information to investors that could affect the value of a​ firm? A. Promises to pay dividends limit the ability of managers to accumulate too much cash and to make unwise investments with that cash. B. Investors are skeptical when managers claim that prospects for the firm are​ bright, but by committing to paying a​ dividend, managers are adding credibility to their statements about the​ firm's future. C. Dividends are a more tax efficient way to generate returns for shareholders. D. By paying dividends​ consistently, investors will come to see dividend payments as less risky than capital gains. Give typing answer with explanation and conclusion

Consider again Milton Friedman’s article. 1. What does Friedman mean by “ethical custom”? 2. If the laws of the society are limiting the company’s profitability, would the company be within its rights to disobey the law? 3. What if the law is “on the books,” but the company could count on a lack of enforcement from state officials who were overworked and underpaid? Should the company limit its profits? Suppose that it could save money by discharging a pollutant into a nearby river, adversely affecting fish and, potentially, drinking water supplies for downstream municipalities. In polluting against laws that aren’t enforced, is it still acting “within the rules of the game”? What if almost all other companies in the industry were saving money by doing similar acts?

Companies often are under pressure to meet or beat Wall Street earnings projections in order to increase stock prices and also to increase the value of stock options. Some resort to earnings management practices to artificially create desired results. Required: 1. How can a company manage earnings by changing its depreciation method? Is this an effective technique to manage earnings? 2. How can a company manage earnings by changing the estimated useful lives of depreciable assets? Is this an effective technique to manage earnings? 3. Using a fictitious example and numbers you make up, describe in your own words how asset impairment losses could be used to manage earnings. How might that benefit the company?

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