ACC 706 Midterm: ACC706 Midterm Preparation

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Present value model provides the utmost in relevant information to f/s users. Relevant information information about the firm"s future economic prospects; dividends, cash flows, and profitability. Certainty or ideal conditions the future cash flows of the firm and the interest rate in the economy are publicly known with certainty. Accretion of discount the stream of cash receipts is one year closer at the end of the year than it was at the beginning. Relevant f/s information gives information to investors about the firm"s future economic prospects. States of nature or states uncertain future events that affect firm performance: conceptual device to model those uncertain, uncontrollable future events. Estimation risk the risk arising from not knowing which sate of nature will happen. Major difference between the uncertainty and certainty cases is that the expected ni and realized ni need not be the same under uncertainty. Abnormal or unexpected earnings the shock to earnings.

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