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Whitney Tilson, a noted analyst, warns investors in an article in The Motley Fool that more than any other type of company, financial companies have immense discretion regarding what earnings to report. The key is the rate of loan losses that they expect to experience, which must be estimated at the end of every period. By changing this estimate, which in turn changes one of the largest expenses on their income statement, financial companies can manage net income. Tilson specifically cites Farmer Mac, the agency created by the federal government to provide funds in the agricultural lending market, which many analysts believe smooths its earnings across time by simply changing its estimate on loss rates. REQUIRED:
a. What does it mean to "smooth earnings across time"? How might a financial company practice this strategy, and why might it engage in this activity?
b. Earnings smoothing has also been associated with conservatism. Why?
Jumbo Juice's preferred stock pays a constant dividend equal to $4.75 per share. The firm's marginal tax rate is 40 percent. Jumbo Juice incurs a 5 percent flotation cost each time it issues preferred stock.
in 2007pxox ltd earned a net profit of 45000000 yuan and paid a cash dividend of 16200000 yuan. in 2008 its net profit
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A portfolio is expected to return 15 percent in a booming economy, 9 percent in a normal economy, and -3 percent in a recessionary economy. The probability a booming economy is 15 percent while the probability of a recession is 5 percent. What is ..
What are the advantages and disadvantages of a call provision from the viewpoints of both a firm and its bondholders? If you were the CEO of a firm, would you recommend a call provision for a new bond issue? Why or why not? Can you identify a r..
A weakness of breakeven analysis is that it suppose: revenue and costs are a linear function of volume, prices and costs increase when the economy is strong and confidence is high.
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Cafe de Oro earns $4.25 per share and has a dividend payout ratio of 0.40. If Cafe de Oro has a capital budget of $200,000 and 70,000 shares outstanding, what are the annual dividends per share?
Steve Smith, the owner of Steve's bowling alley, bought $10,000 of bowling shoes on 1/31/07. He paid $5,000 in cash, and applied rest on account.
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