undermine inter-period equity?
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Please answer with reason for all why the option is correct and why the other options are incorrect
Which of the following practice is most likely to undermine inter-period equity?
- Delay the recognition of expenses incurred to fund a project until a future period in which payment is made.
- Issuing bonds to finance construction of a new school.
- Paying salaries out of the current year budget.
- Recognizing gains or losses on marketable securities as prices increase or decrease.
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- Which of the following statements is false? The cost of debt securities is highest due to their relatively low risk The cost of common stock is highest due to its relatively high risk The cost of preferred stock falls somewhere between debt and common stock None of the above Capital budgeting is the decision making process used in the acquisition of long term physical assets True False Which of the following statements are true regarding the payback period of an investment? It does not account for the time value of money No objective criteria exists for what is an acceptable payback period Cash flows occurring after the payback period have no impact on the payback computation All of the above The method that measures a projects return based on present values is the: Internal Rate of Return Discounted Payback Period Modified Internal Rate of Return None of the AboveSubstantial doubt exists regarding a client's ability to continue. The client must present its plans to mitigate the effects of the events and conditions. Which item is NOT an acceptable plan? a. Restructure debt to delay due date of Bonds Payable. b. Sell assets used in product production for cash. c. Issue Common Stock at market value. d. Decrease dividend requirements. e. Obtain cash by issuing notes.Which of the following statements is NOT CORRECT? A. Although short-term interest rates have historically averaged less than long-term rates, the heavy use of short-term debt is considered to be an aggressive strategy because of the inherent risks associated with using short-term financing B. A company may hold a relatively large amount of cash and marketable securities if it is uncertain about its volume of sales, profits, and cash flows during the coming year C. The cash budget is useful to help estimate future financing needs, especially the need for short-term working capital loans. D. If a firm wants to generate more cash flow from operations in the next month or two, it could change its credit policy from 2/10, net 30 to net 60.
- Which of the following statements relating to working capital financing is not correct? A. A conservative policy uses long-term debt to finance non-current assets. B. Short-term debt is cheaper than long-term debt. C. An aggressive policy uses long-term debt to finance fluctuating current assets. D. Long-term debt is less risky that short-term debt.If a firm plans to issue new stock, flotation costs (investment bankers' fees) should not be ignored. There are two approaches to use to account for flotation costs. The first approach is to add the sum of flotation costs for the debt, preferred, and common stock and add them to the initial investment cost. Because the investment cost is increased, the project's expected rate of return is reduced so it may not meet the firm's hurdle rate for acceptance of the project. The second approach involves adjusting the cost of common equity as follows: The difference between the flotation-adjusted cost of equity and the cost of equity calculated without the flotation adjustment represents the flotation cost adjustment. Quantitative Problem: Barton Industries expects next year's annual dividend, D1, to be $2.50 and it expects dividends to grow at a constant rate g = 4.3%. The firm's current common stock price, P0, is $20.00. If it needs to issue new common stock, the firm will encounter a 6%…If a firm plans to issue new stock, flotation costs (investment bankers' fees) should not be ignored. There are two approaches to use to account for flotation costs. The first approach is to add the sum of flotation costs for the debt, preferred, and common stock and add them to the initial investment cost. Because the investment cost is increased, the project's expected rate of return is reduced so it may not meet the firm's hurdle rate for acceptance of the project. The second approach involves adjusting the cost of common equity as follows:The difference between the flotation-adjusted cost of equity and the cost of equity calculated without the flotation adjustment represents the flotation cost adjustment. Quantitative Problem: Barton Industries expects next year's annual dividend, D1, to be $1.70 and it expects dividends to grow at a constant rate g = 4.7%. The firm's current common stock price, P0, is $23.60. If it needs to issue new common stock, the firm will encounter a 5.2%…
- Suppose a firm makes the following policy changes listed. If a change means that external, nonspontaneous financial requirements (AFN) will increase, indicate this by a (+); indicate a decrease by a (−); and indicate no effect or an indeterminate effect by a (0). Think in terms of the immediate effect on funds requirements.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. Such pressure may cause some managers to alter their estimates for depreciation to artificially create desired results.Required: 1. Understand the reporting effect: Do estimates by management affect the amount of depreciation in its company’s financial statements? 2. Specify the options: To increase earnings in the initial years following the purchase of a depreciable asset, would management (a) choose straight-line or double-declining balance, (b) estimate a longer or shorter service life, and (c) estimate a higher or lower residual value? 3. Identify the impact: Are decisions of investors and creditors affected by accounting estimates? 4. Make a decision: Should a company alter depreciation estimates for the sole purpose of meeting expectations of Wall Street analysts?An analyst at a company notes that its cost of debt is far below that of equity. He concludes that it is important for the firm to maintain the ability to increase its borrowing because if it cannot borrow, it will be forced to use more expensive equity to finance some projects. This might lead it to reject some projects that would have seemed attractive if evaluated at the lower cost of debt. How do you balance the amount of equity and debt? Explain the significance of maintaining the ability to increase borrowing capacity for a company with a lower cost of debt compared to equity. How does this impact project evaluation and investment decisions, and what role does the concept of cost of capital play in such considerations?
- Which of the following statements is NOT CORRECT? a. The cost of retained earnings is less than the cost of new common stock due to flotation costs. While retained earnings may appear to be free money on the surface, there is an opportunity cost to them as these funds could be invested elsewhere and earning a return for shareholders. Due to the lower cost of retained earnings, companies generally prefer to use retained earnings to finance their projects, and only issue new common stock when they absolutely must. b. There are two ways to raise common equity. One source is retained earnings that involves bringing in new funds from outside the company, which represents external equity. The second source is new stock issues that involves bringing in new funds from current stockholders of the company, which represents internal equity. c. Flotation costs reduce the amount of capital the firm receives from a new stock issue. The company must make each…The negative working capital occurs when the اخترأحد الخيارات a. None of the options b. Current equity exceed current assets c. Current assets exceed current equity d. Current liabilities exceed current assets e. Current assets exceed current liabilities Which of the following statement is correct? اخترأحد الخيارات a. Capital structure of a company may comprise of Equity Share Capital, Preference Share Capital and Debentures b. Working capital refers to the mix of different sources of long-term funds c. None of the statement is correct d. Capital expenditure decisions do not involve commitment of large sums of money e. Capital structure is a method of analyzing and comparing substantial future investments and expenditures to determineWhich of the following situations will most likely motivate managers to infl ate earnings inthe current period?A . Possibility of bond covenant violationB . Earnings in excess of analysts’ forecastsC . Earnings that are greater than the previous year