Chapter 1 the equity method of accounting for investments Answers to Questions 1. The equity method should be applied if the ability to exercise significant influence over the operating and financial policies of the investee has been achieved by the investor. However‚ if actual control has been established‚ consolidating the financial information of the two companies will normally be the appropriate method for reporting the investment. 2. According to Paragraph 17 of APB Opinion 18‚ "Ability
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Debt Policy at UST 1. How well is UST doing? * UST has been doing extremely well. Revenues and earnings are growing at 9% and 11% respectively. * Named by Forbes as one of the top companies in terms of profitability. ROC‚ ROE and GPM one of the industry highest. * Paying back generous dividends of $2.2b and repurchasing $2b from 1988 to 1998. * However‚ they seem to be losing market share in the premium market to competitors and have not been able to make an impact in the
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Managerial Actions to Maximize Shareholder Wealth What types of actions can managers take to maximize shareholder wealth? To answer this question‚ we first need to ask‚ “What determines a firm’s value?” In a nutshell‚ it is a company’s ability to generate cash flows now and in the future. We address different aspects of this in detail throughout the book‚ but we can lay out three basic facts now: (1) Any financial asset‚ including a company’s stock‚ is valu- able only to the extent that it generates
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Valuation of equity Example based on dividend discount model : Vardhman limited’s earnings and dividends have been growing at a rate of 18% per annum. This growth rate is expected to continue for 4 years. After that the growth rate will fall to 12 % for the next 4 years. Thereafter‚ the growth rate is expected to be 6 % forever. If the last dividend per share was RS. 2.00 And the investor’s required rate of return on verdhman’s equity is 15% what is the intrinsic value per share? Step 1: the dividend
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1. Agency Problems of MNCs a. Explain the agency problem of MNCs. a. MNC tend to experience greater agency problems than domestic firms because managers of foreign subsidiaries might be tempted to focus on making decisions to serve their subsidiaries rather than serving the overall MNC. Proper incentives and communication from the parent may help to ensure that subsidiary mangers focus on serving the overall MNC. b. Why might agency costs be larger for an MNC than for a purely domestic firm?
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Statement and Statement of Comprehensive Income 2.1.1 Revenue 2.1.2 Gross profit 2.1.3 Operating profit 2.1.4 Finance cost 2.1.5 Profit before tax 2.1.6 Net profit 2.1.7 Earnings per share 2.1.8 Return on investment 2.2 Balance Sheet 2.2.1 Current/ quick ratio 2.2.2 Working capital cycle 2.2.3 Gearing 2.2.4 Asset turnover 2.3 Statement of Changes in Equity 2.4 Cash flow Statement 2.4.1 Operating cash flow/Revenue 2.4.2 Free cash flow 2.4.3 Cash in hand 3.0 Review of
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Efficient Market Hypothesis v’s Behavioural Finance An efficient market is one in which share prices quickly and fully reflect all available information‚ where investors are rational‚ and there are no frictions. Investors determine stock prices on the basis of expected cash flows to be received from a stock and the risk involved. Rational investors should use all the information they have available or can reasonably obtain‚ including both known information and beliefs about the future. In an efficient
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Harmonic Hearing Co. Case Recommendation Under the two circumstances presented‚ I recommend that Harriet Burns and Richard Irvine should finance the purchase of Harmonic Hearing Co. through the deal proposed by the private equity firm‚ Comet Capital. This proposal best aligns with Burns and Irvine’s goal to select an option that offers the “best combination of cost‚ expected return of their ownership interest and financial flexibility.” To evaluate the two alternatives‚ a comparison
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the three ways financing decisions can create value. 1. Fool investors 2. Reduce costs or increase subsidies 3. Create a new security 14.2 How do you define an efficient market? It is a market where current prices reflect all available information. Name the three foundations of market efficiency? Rationality‚ independent deviations from rationality and arbitrage 14.3 How would you describe the three forms of the efficient-market hypotheses? 1. Weak-form EMH postulates that prices reflect
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The Ethical Issues Relating To Hsbc Finance Overview of HSBC Holding Plc HSBC (Hong Kong and Shanghai Banking Corporation) Holding Plc is the worlds’ largest banking group and sixth world largest company according to Forbes Magazine in 2009. Now it spread its banking business all over the world. HSBC bank was funded in 1865. Now the bank has network of some 10‚000 properties in 86 countries around the world. The bank employed 325‚000 full time and part time employees all over the world. The bank
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