PRIN.OF CORPORATE FINANCE >BI<
12th Edition
ISBN: 9781260431230
Author: BREALEY
Publisher: MCG CUSTOM
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Chapter 12, Problem 16PS
a)
Summary Introduction
To discuss: Whether the following situations are true or false based on accounting measures of performance.
b)
Summary Introduction
To discuss: Whether the following situations are true or false based on accounting measures of performance.
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Under the Dupont Technique, which of the following is false?
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Chapter 12 Solutions
PRIN.OF CORPORATE FINANCE >BI<
Ch. 12 - Prob. 1PSCh. 12 - Terminology Define the following: a. Agency costs...Ch. 12 - Prob. 3PSCh. 12 - EVA Here are several questions about economic...Ch. 12 - Accounting measures of performance The Modern...Ch. 12 - Economic income Fill in the blanks: A projects...Ch. 12 - Prob. 7PSCh. 12 - Prob. 8PSCh. 12 - Prob. 9PSCh. 12 - Prob. 10PS
Ch. 12 - Management compensation We noted that management...Ch. 12 - Prob. 12PSCh. 12 - Prob. 13PSCh. 12 - Prob. 14PSCh. 12 - EVA Herbal Resources is a small but profitable...Ch. 12 - Prob. 16PSCh. 12 - Economic income Consider the following project:...Ch. 12 - EVA Use the Beyond the Page feature to access the...Ch. 12 - Accounting measures of performance Use the Beyond...Ch. 12 - EVA Ohio Building Products (OBP) is considering...
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- Which of the following statements is true? a. The fixed asset turnover ratio assists managers in determining the estimated future capital expenditures that are needed. b. The average age of the fixed assets is computed by dividing accumulated depreciation by depreciation expense. c. If net sales increases, the fixed asset turnover ratio will decrease. d. A relatively low fixed asset turnover ratio signals that a company is efficiently using its assets.arrow_forwardFollowing IFRS, which statement is false? Group of answer choices If the long-term operating asset's fair value increases in subsequent accounting periods, after an initial write-down, the firm reports the unrealized gain on the income statement, but only to the extent of previously recognized losses. The revaluation surplus account is reported as other comprehensive income on the statement of comprehensive income. If the revaluation initially decreases the long-term operating asset's carrying value, the firm reports the difference between the carrying value and fair value as an unrealized loss on the income statement. If the long-term operating asset's fair value increases in subsequent accounting periods, after an initial write-down, the firm reports the unrealized gain in the revaluation surplus account.arrow_forward- Firm may invest heavily, but that investment while producing earnings may not add value if operating income is below required return on net operating assets. True or Falsearrow_forward
- Inflation accounting is favored by modern financial analysts over the historical cost accounting as historical cost accounting suffers from the following disadvantage/s a. Understated depreciation and understated cost of sales lead to overstatement of profits, compounded by price inflation b. Understatement of assets will depress a company s share price and make it vulnerable to takeover c. All the given statements are the disadvantages of historical cost accounting that lead to favor inflation accounting. d. Overstated profits can lead to too much being distributed to shareholders, leaving insufficient amounts for investments.arrow_forwardA firm's market-to-book ratio might be greater than 1.0 due to accounting reasons. An example of an accounting reason that would cause the market-to-book ratio to increase is a. straight-line methods of depreciation. b. using LIFO versus FIFO for inventory. c. level 1 fair values. d. off-balance-sheet assets arising from investments in successful research and development programs that are expensed according to conservative accounting principles.arrow_forwardThe book value is derived by subtracting the total liabilities of a company from its total assets. (True / False) The tools used for valuation can vary among evaluators, businesses, and industries. (True / False) The main difference between the discounted cash flow method and the profit multiplier method is that it takes inflation into consideration to calculate the present value. (True / False) Valuation is the process of estimating how a business will performed in the future. (True / False) kindly answer allarrow_forward
- Following IFRS, which statement is false? Group of answer choices If the revaluation initially decreases the long-term operating asset's carrying value, the firm reports the difference between the carrying value and fair value as an unrealized loss on the income statement. If the long-term operating asset's fair value increases in subsequent accounting periods, after an initial write-down, the firm reports the unrealized gain in the revaluation surplus account. The revaluation surplus account is reported as other comprehensive income on the statement of comprehensive income. If the long-term operating asset's fair value increases in subsequent accounting periods, after an initial write-down, the firm reports the unrealized gain on the income statement, but only to the extent of previously recognized losses.arrow_forwardEconomic consequences of accounting standard-setting means: a. standard-setters must give first priority to ensuring that companies do not suffer any adverse effect as a result of a new standard. b. standard-setters must ensure that no new costs are incurred when a new standard is issued. c. the objective of financial reporting should be politically motivated to ensure acceptance by the general public. d. accounting standards can have detrimental impacts on the wealth levels of the providers of financial information.arrow_forwardWhich of the following is not true? GAP analysis Ignores changes in the market value of assets and liabilities. GAP analysis Ignores time value of money. GAP analysis is easy to compute and can accurately predicts the exact losses or gains Gap analysis fails to capture non-interest revenuearrow_forward
- In comparing the current ratios of two companies, why is it invalid to assume that the company with the higher current ratio is the better company? a. The two companies may be different sizes. b. A high current ratio may indicate inadequate inventory on hand. c. The two companies may define working capital in different terms. d. A high current ratio may indicate inefficient use of various assets and liabilities. could you explain this questionarrow_forwardWhich 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.arrow_forwardWhich 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.arrow_forward
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