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Assume that WorldCom paid $7,000 million rental fees to other phone companies in cash at the beginning of Year 1. Instead of correctly debiting the Rental Expense account (i.e. as a revenue expenditure), WorldCom debited $7,000 million to the "Equipment" account (i.e. as a capital expenditure). And, assume that WorldCom depreciated its long-lived assets such as equipment using the straight-line method over 10 years without salvage value. Explain (using numbers in millions) how would this recording "delay expense recognition to future periods and thus boost net income for Year 1". (Ignore tax as tax rules are different from financial accounting rules.) And, Besides net income in the income statement, total assets in the balance sheet would also be wrong. Indicate how would total assets at the end of Year 1 be wrong ("overstated" or "understated") and by how much (in millions of dollars). (Hint: Writing out the related entries for "acquisition" and "depreciation" might help.)
In the utilitarian sense of accomplishing the greatest good for the greatest number in society, was the Standard Oil Company a net plus or a minus? On balance, did the company meet its responsibilities to society?
How do you explain the use of net present value (NPV) in business? What considerations are made when calculating NPV?
What would the return on the Bunds have been without hedging? What was the true cost of the forward contract?
You have been asked by a manager in your organization to put together a training program explaining Net Present Value (NPV) and Future Value (FV) and how they are used to evaluate the price of stock. Describe the factors that are used in the NPV and ..
Samuelson will produce 20,000 units in January using level production. If each unit costs $500 to manufacture, what is the dollar value of ending inventory in January if beginning inventory is 10,000 units and January sales are 15,000?. Select one: a..
Adam Marcs, who graduated from high school last year and could not go to college for lack of funds, has just inherited $60,000 dollars from a distant relative. If we assume that Adam can earn 6% per year on his investments and savings, how much shoul..
Stock in CDB Industries has a beta of 1.06. The market risk premium is 7.1 percent, and T-bills are currently yielding 4.1 percent. CDB’s most recent dividend was $3.00 per share, and dividends are expected to grow at a 5.1 percent annual rate indefi..
You have $49,762 on deposit with no outstanding checks or uncleared deposits. What is your net float?
Woidtke Manufacturing's stock currently sells for $32 a share. The stock just paid a dividend of $2.75 a share (i.e., D0 = $2.75), and the dividend is expected to grow forever at a constant rate of 4% a year. What stock price is expected 1 year from ..
You are considering acquiring a firm that you believe can generate expected cash flows of $27,000 a year forever. However, you recognize that those cash flows are uncertain. a. Suppose you believe that the beta of the firm is 2.1. How much is the fir..
Kiss the Sky Enterprises has bonds on the market making annual payments, What must the coupon rate be on the bonds?
Compute the expected return given these three economic states, their likelihoods, and the potential returns:
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