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

do questions 5 to 10, they are True/False questions

Answer 1

5-	TRUE	yes value of asset comprises of present value of cash flow and including cash flow from a bonds
6-	TRUE	yes it is possible if return on investment is more than the nominal rate of return or inflation
7-	FALSE	it also consider the discounted cash flow model
8-	FALSE	it should focus more on valuation of equity rather than debts
9-	TRUE	Yes it is true that financial models are based on some fixed assumption because all the financial decisions are exercise in precision
10-	TRUE	because market interest rate and coupon rate are inversly related and if coupon rate is more than the market interest rate it would be sold at premium and if coupon rate is lower, it would be sold at discount