Which of the following statements is false regarding the abnormal earnings approach to valuation? Multiple Choice The method uses earnings and equity book value numbers as direct inputs in the valuation process. The method uses the cost of capital as a fundamental economic benchmark. This approach produces results that are generally equivalent to the free cash flow model. This approach is based on the notion that the value of a company is driven primarily by the level of earnings.

Which of the following statements is false regarding the abnormal earnings approach to valuation? Multiple Choice The method uses earnings and equity book value numbers as direct inputs in the valuation process. The method uses the cost of capital as a fundamental economic benchmark. This approach produces results that are generally equivalent to the free cash flow model. This approach is based on the notion that the value of a company is driven primarily by the level of earnings.

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter9: Accounting For Receivables

Section: Chapter Questions

Problem 16MC: Which of the following is true about earnings management? A. It works within the constraints of...

See similar textbooks

Similar questions

Which of the following is true about earnings management? Group of answer choices A. It works outside the constraints of GAAP B. It works outside the constraints of GAAP and t tries to improve stakeholder’s views of the company’s financial position. C. It tries to improve stakeholder’s views of the company’s financial position. D. It works within the constraints of GAAP and it tries to improve stakeholder’s views of the company’s financial position.
Which of the following statements is correct? a. Any forecast of financial requirements involves determining how much money the firm will need and is obtained by adding together increases in assets and spontaneous liabilities and subtracting operating income. b. The percentage of sales method of forecasting financial needs requires only a forecast of the firm's balance sheet. Although a forecasted income statement helps clarify the need, it is not essential to the percentage of sales method. c. Because dividends are paid after taxes from retained earnings, dividends are not included in the percentage of sales method of forecasting. d. Financing feedbacks describe the fact that interest must be paid on the debt used to help finance AFN and dividends must be paid on the shares issued to raise the equity part of the AFN. These payments would lower the net income and retained earnings shown in the projected financial statements. e. All of the statements above are false.
is(are)the reason(s) for profit maximization not a reasonable goal for firms. a. Profit concept ignores timing of the returns b. Profit concept ignores the cash flow available to stock holders c. Profit is risky and can be some times loss d. All the above
Which of the following explains why relative valuation is preferred over intrinsic valuation? a. It requires the collection of data regarding similar firms, thus this method is time-consuming.b.It reflects historical costs that are grounded with facts and not based on assumptions c. Individuals with minimal accounting and finance knowledge can apply this method. d.It uses assumptions that are more cash-flow based.
Practice : a: The computation of return on average investment ignores one characteristic of the earnings stream, which is considered in discounting cash flows. What is this characteristic? Why is it important? b: What are the disadvantages of evaluating an investment using payback period? Why might a company use this methodology despite these disadvantages?
Which of the following best describes why the predicted incremental earnings arising from a given decision are not sufficient in and of themselves to determine whether that decision is worthwhile? ... O A. They do not tell how the decision affects the firm's reported profits from an accounting perspective. O B. They are not easily predicted from historical financial statements of a firm and its competitors. O C. They do not show how the firm's earnings are expected to change as the result of a particular decision. O D. These earnings are not actual cash flows.
Comment on the following statements with suitable example: i. The ratio return on assets has net income in the numerator and total assets in the denominator. Explain how each part of the ratio could cause return on assets to fall. ii. Explain how return on assets could decline, given an increase in net profit margin. iii. If quoted market prices are not available, a personal financial statement cannot be prepared. Comment.
Which TWO of the following are possible effects of rising prices upon financial statements? Understatement of capital employed Overstatement of capital employed Overstatement of profits Understatement of profits
True or False Returns from the overall market can be thought of as a combination of three factors: operating profit, significant expansion or contraction and amount of dividends
State whether the following statements are true or false. 8) Trade-Off between Risk-Return is the main principle to maximize the firm value. 9) Reduce inventory and use the proceeds to pay off a part of current liabilities will lead to increasethe quick ratio. 10) Unethical Behavior of the manager includes using the information that not available to the publicto make money.
Which of the following statements is not correct? Group of answer choices A)Purchasing fixed assets using cash decreases the current ratio. B)Accruing a commission expense will affect the net profit margin ratio. C)Increasing the financial leverage ratio guarantees the net profit margin ratio will increase. D)Purchasing treasury stock results in a decrease in the current ratio. E)All of the above are correct
Why does income smoothing generally lead to a higher share value? a. It reduces the perceived risk of the companyb. It leads to higher perceived incomec. It is perceived as increasing the chance of insolvencyd. None of the above. Research into income smoothing has concluded that a. Smoothed income indicates high earnings qualityb. Smoothed income indicates low earnings qualityc. The findings are mixed with regards to earnings qualityd. There is no relationship between income smoothing and earnings quality