PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 12, Problem 17PS
a)
Summary Introduction
To discuss: Whether the following situations are true or false based on accounting measures of performance.
b)
Summary Introduction
To discuss: Whether the following situations are true or false based on accounting measures of performance.
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Students have asked these similar questions
Which of the following is not true?
GAP analysis Ignores changes in the market value of assets and liabilities.
GAP analysis Ignores time value of money.
GAP analysis is easy to compute and can accurately predicts the exact losses or gains
Gap analysis fails to capture non-interest revenue
Which of the following is false regarding book and market
values?
Select one:
O a. Financial managers should rely on book values, and not
market values, when analyzing the firm's tax liability.
O b. Book value is an accounting summary of value and is
inferior to market value as a source of current information
regarding the true value of the firm.
c. Market value always exceeds book value.
O d. The market value of fixed assets is often difficult to
determine.
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.
Chapter 12 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 12 - Terminology Define the following: a. Agency costs...Ch. 12 - Prob. 2PSCh. 12 - Prob. 3PSCh. 12 - Prob. 4PSCh. 12 - Prob. 5PSCh. 12 - Prob. 6PSCh. 12 - Management compensation We noted that management...Ch. 12 - Prob. 8PSCh. 12 - Prob. 9PSCh. 12 - Prob. 10PS
Ch. 12 - Prob. 11PSCh. 12 - Economic income Fill in the blanks: A projects...Ch. 12 - Economic income Consider the following project:...Ch. 12 - Accounting measures of performance Use the Beyond...Ch. 12 - Accounting measures of performance The Modern...Ch. 12 - Prob. 17PSCh. 12 - EVA Here are several questions about economic...Ch. 12 - EVA Herbal Resources is a small but profitable...Ch. 12 - Prob. 20PSCh. 12 - EVA Use the Beyond the Page feature to access the...Ch. 12 - EVA Ohio Building Products (OBP) is considering...
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- One of the indirect costs of financial distress is having to sell assets at lower than market value. Using examples explain what this is and how it could effect the value of a firm.arrow_forward- Firm may invest heavily, but that investment while producing earnings may not add value if operating income is below required return on net operating assets. True or Falsearrow_forwardUnder the Dupont Technique, which of the following is false? -Asset management, as represented by the ratio of net sales and average equity, is one of the factors that is considered in deriving the return on assets. -Dupont Technique reveals the factors that determines the firm’s return on asset. -The Company’s assessment of asset utilization and profitability can be determined by the Dupont Technique. -The return on asset is the computed by multiplying the return on sales and the asset turnover.arrow_forward
- A disadvantage of using the payback period to compare investment alternatives is that it a. Ignores cash flows beyond the payback period. b. Cannot be used to compare alternatives with different initial investments. c. Cannot be used when cash flows are not uniform. d. Involves the time value of money. e. Cannot be used if a company records depreciation.arrow_forwardInflation accounting is favored by modern financial analysts over the historical cost accounting as historical cost accounting suffers from the following disadvantage/s a. Understated depreciation and understated cost of sales lead to overstatement of profits, compounded by price inflation b. Understatement of assets will depress a company s share price and make it vulnerable to takeover c. All the given statements are the disadvantages of historical cost accounting that lead to favor inflation accounting. d. Overstated profits can lead to too much being distributed to shareholders, leaving insufficient amounts for investments.arrow_forwardA firm's market-to-book ratio might be greater than 1.0 due to accounting reasons. An example of an accounting reason that would cause the market-to-book ratio to increase is a. straight-line methods of depreciation. b. using LIFO versus FIFO for inventory. c. level 1 fair values. d. off-balance-sheet assets arising from investments in successful research and development programs that are expensed according to conservative accounting principles.arrow_forward
- 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.arrow_forwardIn comparing the current ratios of two companies, why is it invalid to assume that the company with the higher current ratio is the better company? a. The two companies may be different sizes. b. A high current ratio may indicate inadequate inventory on hand. c. The two companies may define working capital in different terms. d. A high current ratio may indicate inefficient use of various assets and liabilities. could you explain this questionarrow_forwardFirm's that choose to hold more current assets are in general is more ILLIQUID that firms that do not. True Falsearrow_forward
- For researchers to consider an investment strategy to have delivered abnormal returns, it must have exceeded the return on its benchmark plus: the return on the risk-free asset. transaction costs and the highest marginal income tax rate. transaction costs and information acquisition costs. All of the above answers are correct. None of the above answers are correct.arrow_forwardWhen analyzing an income statement, which of the following statements is true? Multiple Choice Depreciation is a non cash item on the income statement. Generally accepted accounting principles (GAAP) require that income is reported when it is earned, even though no cash flow may have occured. Jhy Companies try ot make costs variable with sales as much as possiblearrow_forwardExplain, with examples, why accruals reverse and what the long term consequences are for a firm with aggressive accounting, i.e. with a management trying to overstate the firm's profit.arrow_forward
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