ACC 406 Lecture Notes - Lecture 3: Cash Flow, Capital Structure, Income Statement

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7 Mar 2017

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3 decisions managers make to achieve their goal: investment decision- capital budgeting, financing decisions- capital structure, dividends. Goal of manager is to maximize the shareholder market value. Market value of assets (v) = present value of the expected future/forecasted cash flow from the assets. Market value of equity (e) = present value of the expended future/forecasted cash flow to the shareholders. Market value of debt (d) = present value of the expected future/forecasted cash flow to bondholder(cfb) Market value of assets = market value of debt + market value of equity. Cash flow from the assets = (cash flow to bondholders + cash flow to shareholders ) Cfa = operating cash flow - investments in or additions to operating networking. From 123 inc. income statement given in class. Operating nwc = ca (cl std) Ocf = earning before interest & taxes taxes + depreciation. Operating nwc (2016) = current assets (current liabilities short term debt)

Related Questions

1 Accounting

The following are 10 technical accounting terms.

Net present value Capital budgeting Incremental analysis Discount rate Payback period Present value Sunk cost Salvage value Return on average investment Capital budget audit Each of the following statements may (or may not) describe one of these technical terms.

For each statement, indicate the accounting term described, or answer âNoneâ if the statement does not correctly describe any of the terms.

a the examination of difference among revenue, costs, and cash flows under alternative courses of actions

b a cost incurred in the past that cannot be changed as a result of future actions

c the process of planning and evaluating proposals for investments in plan assets

d the average annual net income from an investment expresses as a percentage of the average amount invested

e the length of time necessary to recover the entire cost of an investment from resulting annual net cash flows

f the present value of investment's expected future cash flows

g the amount of the money today that is considered equivalent to the cash flows expected to take place in the future

h the required rate of return used by an investor to discount future cash flows to their present value

i often an investment's final cash flows to be considered in discounted cash flow analysis

scarletworm172

Which of the following statements concerning cash flow planningis correct?

The goal is to maximize net cash flow.

The goal should be to invest for the future, rather thanmaintaining current lifestyle.

The goal should be to identify strengths and weaknesses in theclientâs cash flows.

The goal is to optimize net cash flow.

All the following are advantages of budgeting, EXCEPT:

It helps reveal inefficient uses of resources.

It fosters creativity and judicious risk-taking.

It provides a way of measuring progress toward goals.

It heightens awareness of and attention to the need to setfinancial goals.

Robert and Jennifer are looking to refinance their $400,000mortgage. Which of the following mortgages will allow them to paythe smallest monthly payment this year if they all charge a 5%interest rate?

30-year standard mortgage

30-year biweekly mortgage

30-year balloon mortgage

30-year adjustable rate mortgage

Banks will typically grant home equity loans or lines of creditup to what loan-to-value percentage?

20 percent

40 percent

60 percent

80 percent

Chase, age 26, is just beginning his career as a computeranalysts after completing graduate school. He is engaged andplanning to purchase a home soon after marrying his collegesweetheart. His life stage is somewhat typical for someone in the_____ life stage.

		1
		2
		3
		4 6.

Which of the following are appropriate investments for Loganâsemergency fund assets?

I Checkingaccount

II Moneymarket accounts

III Short-termcertificates of deposit

IV U.S.Treasury bills

		I and III only
		II and IV only
		II and III only
		I, II, III, and IV

1.If an investmentâs net present value is zero, then it's IRRmust also be zero.

Select one:

a. TRUE

b. FALSE

2.Todd Arnold deposits $2000 in a savings account that compoundsat 8% annually. How much will he have in 10 years? (Round to thenearest dollar).

Select one:

a. $4306

b. $4300

c. $4318

d. $4377

3.Capital gains are tax consequences of the sale of an old assetif

Select one:

a. The asset is sold for any amount other than the bookvalue

b. the asset is sold for less than the book value

c. The asset is sold for more than the book value

d. The future depreciation is not lost

e. The future depreciation is lost

4.Qualitative considerations are as important as cash flow ininvestment decisions.

Select one:

a. TRUE

b. FALSE

5.John Guy is saving for a new boat. He needs $60,000. How muchmoney should he put in a savings account that compounds at 8% tohave $60,000? (Round to the nearest dollar).

Select one:

a. $36,410

b. Unable to determine from data given

c. $38,706

d. $39,420.

6.Unless an addition to working capital is permanent, it shouldnot be considered among the cash flows of a capital budget.

Select one:

a. TRUE

b. FALSE

ACC 406 Lecture Notes - Lecture 3: Cash Flow, Capital Structure, Income Statement

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