Book values versus market values: Under standard accounting rules, it is possible for a company’s liabilities...
Book values versus market values: Under standard accounting rules, it is possible for a company’s liabilities to exceed its assets. When this occurs, owners’ equity is negative. Can this happen with market values? Why or why not?
Homework Answers
In a business environment it is possible that company's
liabilities may exceed its assets. It happens in following
situations-
(a) Substantial operating losses over a period of time.
(b) Fall in market values of assets.
Hence, when the market values of assets fall, the revaluation loss is written off using reserves which depletes the owners equity.
Hence, in such cases, the owners equity is negative when market value approach is followed.
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Book values versus market values: Under standard accounting
rules, it is possible for a company’s liabilities...
DUE via ulcau no later than midnight January 19, 2019 Under standard accounting rules, it is...
DUE via ulcau no later than midnight January 19, 2019 Under standard accounting rules, it is possible for a company's liabilities to exceed its assets. When this occurs, the owner's equity is negative. Can this happen with market values? Why or why not? Answer: 4. 5. Could a company's change in NWC be negative in.a siven.vear? (hint, yes). Explain how this might come about. What about net capital spending? Answer Critical Thinking Questions Chapter 3
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11.6
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DUE via ulcau no later than midnight January 19, 2019 Under standard accounting rules, it is possible for a company's liabilities to exceed its assets. When this occurs, the owner's equity is negative. Can this happen with market values? Why or why not? Answer: 4. 5. Could a company's change in NWC be negative in.a siven.vear? (hint, yes). Explain how this might come about. What about net capital spending? Answer Critical Thinking Questions Chapter 3
Concept Questions 1. Liquidity True or false: All assets are liquid at some price. Explain. 2. Accounting and Cash Flows Why might the revenue and cost figures shown on a standard income statement not represent the actual cash inflows and outflows that occurred during a period? CHAPTER 2 Financial Statements and Cash Flow 35 3. Accounting Statement of Cash Flows Looking at the accounting statement of cash flows. what does the bottom-line number mean? How useful is this number for...
: . If the after-tax cost of Book value versus market value components. Compare Trout, Inc. with Salmon Enterprises, using the balance sheet of Trout and the market data of Salmon for the weights in the weighted average cost of capital: debt is 7.6% for both companies and the cost of equity is 14.06%, which company has the higher WACC? What is the book value adjusted WACC for Trout, Inc.? % (Round to two decimal places.) Data Table - X...
Book value versus market value components. Compare Trout, Inc. with Salmon Enterprises, using the balance sheet of Trout and the market data of Salmon for the weights in the weighted average cost of capital: . If the after-tax cost of debt is 7.5% for both companies and the cost of equity is 12.24%, which company has the higher WACC? What is the book value adjusted WACC for Trout, Inc.? % (Round to two decimal places.) Х Data Table Click on...
11.6
Book value versus market value components. The CFO of DMI is trying to determine the company'e WACC. Brad, a promising MBA, says that he company should use book value to assign the WACC components' percentages. Angela, a long-time employee and experienced financial Analyst, says that the company should use market value to assign the components' percentages. The after-tax cost of cebt is at 10.3% the cost of preferred stock is at 1529%, and the cost of equity is at...
Book value versus market value components. Compare Trout, Inc. with Salmon Enterprises, using the balance sheet of Trout and the market data of Salmon for the weights in the weighted average cost of capital: EIf the after-tax cost of debt is 8.6% for both companies and the cost of equity is 12.82%, which company has the higher WACC? What is the book value adjusted WACC for Trout, Inc.? Current assets: Long-term assets: Total assets: $2,888,889 $10,111,111 $13,000,000 Trout, Inc. Current...
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