Question

Consider the balance sheet of Wilkes Industries as shown below. Because Wilkes has $800,000 of retained carnings, the company would be able to pay cash to buy an asset with a cost of $200.000 Cash Inventory Accounts receivable Total Current Assets Net fixed assets $ 50.000 Accounts payable 200.000 Accruals 250.000 Total Current Liabilities S500.000 Debt $ 900.000 Common stock Retained carnings 51.400.000 Total Liabilities & Equity $ 100.000 100.000 $200.000 200,000 200 000 0 000 S1.400.000 Total assets Net operating profit after taxes (NOPAT) is the amount of net income a company would generate from its operations if it had no interest income or interest expense. The retained earnings account on the balance sheet does not represent cash Rather, it represents part of stockholders' claims against the firm's existing assets. This implies that retained earnings are in fact stockholders reinvested earnings 4. In accounting, emphasis is placed on determining net income in accordance with generally accepted accounting principles. In finance, the primary emphasis is also on net income because that is what investors use to value the firm. However, a secondary financial consideration is cash flow, because cash is needed to operate the business From a corporate finance perspective, the value of any asset, financial or physical, is the present value of the future cash flows the asset is expected to generate, and this includes the expected future cash flow a bond Disregarding risk, if money has time value, it is impossible for the future value of a given sum to exceed its present value The fundamental value of a company is another way investors describe a company's intrinsic value, but fundamental value does not refer to a value derived from using a discounted cash flow model A company seeking to increase its equity capital should focus more on understanding the short-term bond yields than on the returns that equity investors are seeking

state whether each statement 1-8 if its true or false

Answer 1

As per HOMEWORKLIB RULES we can answer only 4 sub questions in a single question, student may re upload remaining questions.

1. False, company having a lot of amount under retained earnings doesn't mean that the company is able to buy a new asset, all the money's of the company, as you can see, are locked up in the assets of the company and the company don't have adequate cash to make the purchase, therefore the statement is false.
2. True, NOPAT is used for the calculation purposes of various performance measurement techniques, which is the amount of income the company would have earned without considering any debt costs that is interest costs, however the tax impact would be considered for calculating NOPAT.
3. True, as discussed in the 1st question, retained earnings doesn't represent cash, and retained earnings can also be said to be shareholders reinvested earnings.
4. True, in accounting the focus would be on determining the net income in lines with the GAAP'S, whereas in finance the primary emphasis is on net income, as shareholders use net income to value the company which is calculated on accrual basis. And secondary emphasis would be on cash flows as maintenance on adequate liquidity is mandatory for running of a business.