Although the equity method is a generally accepted accounting principle (GAAP), recognition of equity income has been criticized. What theoretical problems can opponents of the equity method identify? What managerial incentives exist that could influence a firm’s percentage ownership interest in another?
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A: Solution: Current ratio is calculated as = Current assets / Current liabilities Current assets…
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A: The treasury shares are the shares which are repurchased by company from its own shares.
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A: WACC is the weighted average cost of capital of the capital sources of a firm. It includes equity,…
Q: The cost of retained earnings have the lowest weight in computation of the weighted average cost of…
A: correct answer is (a) The cost of retained earnings have the lowest weight in computation of the…
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A: Hi, since you have posted multiple questions, we will answer only the first one, as per authoring…
Q: What can be said about a firm whose owners’ equity is a negative amount? How could such a situation…
A:
Q: Floatation or issuance cost of new securities are present in an imperfect economy. True False
A: Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only one…
Q: A company has been using the fair-value method to account for its investment. The company now has…
A: A company is using fair value method to account for its investment. Now due to exercise of…
Q: Although the equity method is a generally accepted accounting principle (GAAP), recognition of…
A: The equity method has been criticized due to the fact that it allows the investors to recognize the…
Q: equity does not represent the market value of the company
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Q: Identify the term being referred to: A theory that states that how high or low an entity pays out…
A: Solution:- There are two theories related to dividend- Dividend relevance theory and dividend…
Q: Which of the following statements is CORRECT? Select one:
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A: Dividend policy is a policy that determines the division of earnings into dividend and retained…
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A: Spreading the financial statement is also referred to as a common-size financial statement. A common…
Q: should companies retain these dividends in the firm to protect employment and investments?
A: Since there are 3 separate questions it is possible to solve the first question.
Q: Respond to Jerry’s criticism that shareholders’ equity does not represent the marketvalue of the…
A: Balance sheet: This financial statement reports a company’s resources (assets) and claims of…
Q: What is the implication of managerial entrenchment: should company favor debt or equity? Why?
A: Managerial entrenchment theory-says that allotment of shares inside the organization such as…
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A: Financial leverage which is also known as leverage or trading on equity
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A: As per Bartleby Honor Code, when multiple questions are asked, the expert is required only to solve…
Q: What may be stated about a business whose equity is negative? How did such a scenario arise?
A: Investors use shareholders' equity, which is shown on a company's balance sheet, to assess a…
Q: Why is the Equity Valuation method is preferable from the point of view of an investor in valuing…
A: Valuation is the process of ascertaining the market value of the business or an asset. The valuation…
Q: The cost of equity is the rate associated with what the shareholders expect the corporation to earn…
A: Equity refers to the amount contributed by the owners of a entity i.e. shareholders of a entity.
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A: The argument for this statement is this that whether to use current value or not is totally depends…
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Q: Indicate whether its TRUE or FALSE. Then provide a complete explanation! Financial risk is…
A: We’ll answer the first question since the exact one wasn’t specified. Please submit a new question…
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Q: c) Explain why agency costs would probably be more of a problem for a large, publicly owned firm…
A: Agency cost arise due to the conflict of interest present in between management and shareholders.…
Q: How does the equity method discourage the manipulation of net income by investors?
A: Equity method is used for accounting for investments by one company in another company when the…
Q: The corporate valuation model cannot be used unless a company pays dividends. a. True b. False
A: The corporate valuation model beginnings with determining the estimation of the assets or resources…
Q: If the stock market is efficient, why do companies manage their earnings? O To avoid violating debt…
A: The question is multiple choice question. Required Choose the Correct Option.
Q: Empirical evidence indicates that the returns to shareholders of the target firm vary significantly…
A: According to Empirical evidence, the shareholders of the taget firm have the advantage of earning…
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- Respond to Jerry’s criticism that shareholders’ equity does not represent the marketvalue of the company. What information does the balance sheet provide?Which of the following statements is false? a. A firm’s return on equity exceeds its return on investment under conditions of favorable leverage. b. A common-size balance sheet states each asset, liability and shareholder’s equity account as a percentage of total assets. c. Common-size statements are used to evaluate trends and to make industry comparisons. d. Creditors tend to favor a firm with high financial leverage.Respond Anna's criticism that shareholders’ equity does not represent the market value of the company
- Which of the following statements is true? The cost of retained earnings have the lowest weight in computation of the weighted average cost of capital since no flotation cost is involved One of the advantage to a firm of being near its target capital structure is that its financial flexibility becomes much less important. Those Industry characteristics that are considered risky in nature and may affect a company’s business risk are still subjected to a certain degree of managerial control. The capital structure that maximizes the firm’s stock price is also the one that increases the firm’s weighted average cost of capital at a maximum rateWhich of the following statements is CORRECT? Select one: a. Conflict of interest between shareholders and managers is not possible. b. By definition, the agency problem can only take place in corporations but not in proprietorships and partnerships. c. Conflict of interest between shareholders and bondholders is not possible. d. Managers always work to maximize the long-run value, and therefore the price, of their company stocks. This is exactly what shareholders desire.Which of the following statements is FALSE? In the shareholder/debtor relationship, the: a. Debtor is the principal, because they have delegated authority to management b. Shareholder and debtor interests are increasingly aligned as the company takes on more debt. c. Interests of the firm’s management tend to be aligned more closely with those of the firm’s shareholders d. Shareholders have an incentive to take on risky projects because they get to keep residual earnings of the firm a. Interests of the firm’s management tend to be aligned more closely with those of the firm’s shareholders b. Shareholders have an incentive to take on risky projects because they get to keep residual earnings of the firm c. Debtor is the principal, because they have delegated authority to management d. Shareholder and debtor interests are increasingly aligned as the company takes on more debt.
- Which one of the following statements about book value and market value is correct? Group of answer choices a. Both book value and market value are forward-looking. b. Both book value and market value account for all forms of assets and liabilities of a firm. c. The market value of equity should not differ much from the book value of equity. d. Decision-making should be based on market value instead of book value.Which of the following statements is false regarding the abnormal earnings approach to valuation? Multiple Choice The method uses earnings and equity book value numbers as direct inputs in the valuation process. The method uses the cost of capital as a fundamental economic benchmark. This approach produces results that are generally equivalent to the free cash flow model. This approach is based on the notion that the value of a company is driven primarily by the level of earnings.Choose the correct. Which of the following is not included in the assumption on which Myron Gorden proposed a model on Stock valuation: A. Retained earning the only source of financing B. Finite Life of the firm C. Taxes do not exist D. Constant rate of return on firms investment.
- Which of the following statements is correct? A. The optimal dividend policy is the one that satisfies management, not shareholders. B. The use of debt financing has no effect on earnings per share (EPS) or stock price. C. Stock price is dependent on the projected EPS and the use of debt, but not on the timing of the earnings stream. D. The riskiness of projected EPS can impact the firm's value. E. Dlvidend policy is one aspect of the firm's financial policy that is determined solely by the shareholders. Reset SelectionWhy is the Equity Valuation method is preferable from the point of view of an investor in valuing the business?Indicate whether its TRUE or FALSE. Then provide a complete explanation! Financial risk is reflected in the variability in the returns a company may generate on its assets and is mainly driven by the risks inherent in the industry that the company operates in. Introducing leverage into a firm’s capital structure may increase the expected returns for shareholders but the impact on share price may still be uncertain.