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How and why does working capital affect the incremental cash flow estimation for a proposed large capital budgeting project? Explain.
What is a sunk cost? Is it relevant when evaluating a proposed capital budgeting project? Explain.
Quiddich Company sells bonds that cost $40,000 for $45,000, including $1,000 of accrued interest. In recording the sale, Quiddich books a $5,000 gain. Is this correct? Explain.
Explain how using a risk-adjusted discount rate improves capital budgeting decision making compared to using a single discount rate for all projects?
Why is the coefficient of variation a better risk measure to use than the standard deviation when evaluating the risk of capital budgeting projects?
Explain how to resolve a "ranking conflict" between the net present value and the internal rate of return. Why should the conflict be resolved as you explained?
What is the decision rule for accepting or rejecting proposed projects when using net present value?
Kate Denton is confused about losses and gains on the sale of debt investments. Explain these issues to Kate: How the gain or loss is computed.
How do we calculate the payback period for a proposed capital budgeting project? What are the main criticisms of the payback method?
For a given IOS and MCC, how do financial managers decide which proposed capital budgeting projects to accept, and which to reject?
What is the investment opportunity schedule (IOS)? How does it help financial managers make business decisions?
To be classified as short-term investments, debt investments must be readily marketable and be expected to be sold within 3 months from the date of purchase.
If dividends paid to common stockholders are not legal obligations of a corporation, is the cost of equity zero? Explain your answer.
Which formula would you use to solve for the payment required for a car loan if you know the interest rate, length of the loan, and the borrowed amount? Explain.
If you are doing PVA and FVA problems, what difference does it make if the annuities are "ordinary annuities" or "annuities due"?
Suppose you are planning to make regular contributions in equal payments to an investment fund for your retirement. Which formula would you use to figure out how much your investments will be worth
What does it mean when we say that the correlation coefficient for two variables is -1? What does it mean if this value were zero? What does it mean if it were +1?
At January 1, 2012, there was a credit balance of $900 in the Market Adjustment-Available for- Sale account. The required adjusting entry would be?
What happens to the riskiness of a portfolio if assets with very low correlations (even negative correlations) are combined?
If a company wants to increase its reported income by manipulating its investment accounts, which should it do? Sell its "winner" trading securities and hold its "loser" trading securities.
What is risk aversion? If common stockholders are risk averse, how do you explain the fact that they often invest in very risky companies?
Explain how the cash budget and the capital budget relate to pro forma financial statements.
At the end of the first year of operations, the total cost of the trading securities portfolio is $120,000 and the total fair value is $115,000. What should the financial statements show?
If Horicon uses the equity method to account for its investment, the balance in the investment account on December 31, 2012, will be?
The equity method of accounting for long-term investments in stock should be used when the investor has significant influence over an investee and owns.