Practice : a: The computation of return on average investment ignores one characteristic of the earnings stream, which is considered in discounting cash flows. What is this characteristic? Why is it important? b: What are the disadvantages of evaluating an investment using payback period? Why might a company use this methodology despite these disadvantages?

Q: Conventional wisdom says that one should measure a manager’s investment performance over an entire…

A: The arguments to support or contradict the convention are:

Q: Why should the managers make investment decisions on the basis of cashflows rather than profits?

A: Net income: The bottom line of an income statement which is the result of excess earnings from…

Q: A conservative approach to reinvesting projected cash flows (the reinvestment assumption) would use…

A: “Hey, since there are multiple different questions posted, we will answer first question. If you…

Q: Briefly summarise the findings of Penman and Sougiannis (1998) concerning the ex-post performance of…

A: Since there are multiple questions, first 2 questions are only answered. For unanswered questions,…

Q: The pricing efficiency of financial markets can be expected to decrease if the cost of skillful…

A: Skilled financial manpower is very important in financial sector and valuation of assets in…

Q: Define the following terms: inventory conversion period, average collection period, and payables…

A: All the transactions of the company that are happened during the year will be recorded first in the…

Q: Is the claim that lower company taxes adding to investments correct or is it debatable given the…

A: The money left after expenditure is savings. Savings are used by the individuals for investment. Not…

Q: Value One category of capital investment evaluation methods does not use present value. The primary…

A: Cash Pay Back Method and Accounting Rate of Return are two Traditional methods of capital budgeting.…

Q: A. When retained earnings are exhausted, the MCC breaks upward. What happens if the firm continues…

A: Retained Earnings refer to that part of net income or profit that is just leftover after making…

Q: Which of the following is not a determinant of investment? a) The efficiency of capital equipment…

A: To increase capital assets, business do investments in property, fixed assets, financial market,…

Q: Which one of the following statements is correct?  A.  If a firm decreases its inventory…

A: Inventory period is based on how much inventory on average you keep on hand and receivable period is…

Q: Which of the following is not an approach to replacement analysis? Solve, a. Cash flow approach b.…

A: Replacement analysis is the study of organizing, reasoning and implementation of successful…

Q: How should (a) signaling and (b) the clienteleeffect be taken into account by a firm as it considers…

A: “Since you have asked multiple questions, we will solve the first question for you. If you  want any…

Q: Is this statement true or false? please explain in detail The Discounted Cash Flow method is the…

A: The value of an investment is calculated using the discounted cash flow (DCF) approach based on the…

Q: True or False The CFROI is a measure of the dollar surplus value created by an investment or a…

A: The answer is stated below:

Q: After tax cash flow = Earnings after tax  +  __________ A sunk cost is one that has been incurred…

A: Cash flows after tax can be computed by adding back the depreciation or other sunk cost to the…

Q: Which of the following items describes a weakness of the internal rate-of-return method?a. The…

A: IRR (Internal Rate of Return):

Q: What is the effect of changes in cash flows, investment cost and cash outflows on profitability…

A: Profitability Index is the ratio that is resulted from dividing the current worth of subsequent year…

Q: Firms will take investments only when expected risks are remunerated by expected profit. *   a.…

A: Every investment comes with its own set of benefits and risks. Every company must make a decision on…

Q: Would it be possible for a company to report negative free cash flow and still be highlyvalued by…

A: Yes. Negative free cash flow is not necessarily bad. Most rapidly growing companies have negative…

Q: How can a company’s operations generate a healthy profitand yet produce meager or even negative cash…

A:

Q: Many firms still use the internal rate of return rule instead of net present value. When used…

A: The net present value (NPV) and internal rate of return (IRR) are the methods that are used for the…

Q: Which of the following statements is NOT CORRECT? why?   The corporate valuation model can be used…

A: Corporate Valuation Model(CVM) is used to ascertain market value of business entities. CVM includes:…

Q: - How would a reduction in the cash conversion cycle increase profitability? What are some actions a…

A: CCC or cash conversion cycle is referred to as the metric, which is used to express the time length…

Q: What are the advantages/disadvantages of using the discounted cash flows method of estimating the…

A: Discounted cash flows method : Discounted cash flow method considers the time value of money in…

Q: Which of the following explains why relative valuation is preferred over intrinsic valuation?  a.…

A: Stock valuation: It is the process of analyzing the prices of stock before investing in it. The…

Q: The company’s usage of the Baumol model in cash management involves trade-off. A decrease in the…

A: William J. Baumol developed Baumol's EOQ model in 1952 based on the Economic Order Quantity (EOQ),…

Q: The book value is derived by subtracting the total liabilities of a company from its total assets.…

A: 1. Book Value is the difference between a company's total assets and its total liabilities.…

Q: What is a discounted cash flow approach to fair market value estimation, and what are some of the…

A:

Q: Which of the following is NOT an advantage of the valuation multiple method as compared to the…

A: Valuation multiples are financial assessment tools that compare different organizations by…

Q: The internal rate of return method of evaluating capital investments can be used with uneven cash…

A: Uneven cash flows is a series where the cash flows are not the same throughout the project's life.…

Q: Why is "Projecting Growth Beyond What the Capital Being Valued Will Support" considered a common…

A: Income Approach There are two different model which was incurred in the income approach.  The…

Q: Choose the INCORRECT one among the following statements a) Increase in the working capital turnover…

A: Ratio analysis means where different ratio of various years of years companies has been compared and…

Q: Which of the following statements Is false with respect to the simple rate of return? Multiple…

A: Formula: Simple rate of return = Average profits / Initial investment

Q: which:     successful strategies will not be reflected in accounting profits for a number of…

A: There are activities whose usefulness or potential cannot be measured in terms of money and they…

Q: The internal rate of return (IRR) can best be described as: A. the discount rate at which a set of…

A: It is one of capital budgeting discounting techniques which is used as a metric in financial…

Q: Explain intuitively how a manager could tweak the salvage value of machinery to benefit from an…

A: The question is related to Capital Budgeting and portfolio management.

Q: Companies that face large investments they cannot finance internally through the retention of…

A: Floatation costs are the expenses incurred to raise capital such as, brokerage fee, underwriting…

Q: Which of the following statements is false? A. Net incomes are not cash flows. Financial Managers…

A: Capital budgeting are the process through which the firm decide which project to take up.

Q: f the following is false? a. Baumol model helps firm to find out their desirable level of cash…

A: Account payable are the amount of money to be given to the suppliers and creditors who provides…

Q: The company’s usage of the Baumol model in cash management involves trade-off. A decrease in the…

A: Cash, according to William J. Baumol (1952), may be maintained in the same way as any other…

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.