An investor has a long-term investment in stocks. Regular cash dividends received by the investor are recorded as   Fair Value Method Equity Method A reduction of the investment Income Income Income Income A reduction of the investment A reduction of the investment A reduction of the investment

The Equity Method of accounting for investments:     a)  Requires the investment asset to increase proportionally with the affiliates net income   b)  Requires the investment asset to decrease proportionally with the affiliates net loss   c)  Requires the investment asset to decrease proportionally with dividends received   d)  All of the above

Which of the following statements is false?   A.   Mutual funds are pool investor funds to purchase financial instruments and thus reduce risks through diversification.   B.   Initial public offering (IPO) occurs when firm issues stock in the public market for the first time.   C.   The difference between current assets and non-current assets equals to working capital.   D.   Owner’s equity is the residual interest in assets that remains after subtracting an entity’s liabilities.

Do you believe that the cash flows from the sale of an investment should also include the tax effect of the sale? Explain. Do you believe the cash flows from investing activities should include not only the return of investment, but also the return on investment, that is the interest and dividend revenue? Explain.

The cost of retained earnings is less than the cost of ordinary shares because of *a. the issuance cost.b. agency costs of free cash flow.c. the taxation on earnings.d. the trust fund doctrine.

True (t) or False (f) ______ Short-term, highly liquid investments may be included with cash on the balance sheet.

Defining capital investment terms Fill in each statement with the appropriate capital investment analysis method: Payback, ARR, NPV, or IRR. Some statements may have more than one answer. a. —–— is (are) more appropriate for long-term investments. b. —–— highlights risky investments. c. —–— shows the effect of the investment on the company’s accrual-based income. d. —–— is the interest rate that makes the NPV of an investment equal to zero. e. —–— requires management to identify the discount rate when used. f. —–— provides management with information on how fast the cash invested will be recouped. g. —–— is the rate of return, using discounted cash flows, a company can expect to earn by investing in the asset. h. —–— does not consider the asset’s profitability. i. —–— uses accrual accounting rather than net cash inflows in its computation.

Current Attempt in Progress Equity investments that are accounted for under the cost model will result in O recognition of dividend income only when actually received. expensing transaction costs when incurred. O recognition of a gain or loss in other comprehensive income at disposal. O recognition of a gain or loss in net income at disposal.

The cost of capital can be thought of as the rate of return required by investors in the firm's securities. O a. false O b. true

Interpretation No. 46R relates to the issue of whether an investing firm is the primary beneficiary in a variable-interest entity. When is an entity classified as a variable interest entity?   Starting with free cash flows from operations, discuss how an analyst would measure free cash flows to common equity shareholders.