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Explain why accounting profits and cash flows are not the same thing.
Ans: Stock value relies on future cash flows, their timing, and their riskiness. Profit calculations do not refer these three factors. Profit, as described in accounting, is just the difference among sales revenue and expenses. It is true that much more profits are usually better than less profit, but while the pursuit of short-term profits unfavorably affects the size of future cash flows, their timing, or their riskiness, after that these profit maximization attempts are detrimental to the firm.
Use of Beta to Partition Risk The total risk or variability in earnings can be attributed to two classes of factors: Marketwide factors which create variability in all
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Considering the following information, what is the price of the share as per Gordon's Model? Details of the Company
Why does money have time value? Positive interest rates point toward that money has time value. When one person lets one more borrow money, the first person needs compensation
a) Year 2 Year 1 Stock turnover (350/500) * 365 = 255.5 days (250/450) * 365 = 202.7 days
The formula explained in the above paragraph enables the investor to compute the value of a bond with an embedded option as the difference between the value of an
Strong form level of Efficiency This level states that price reflects all the available public and private information (past, present and future information). If the hypothesis
What can a financial institution often do for a surplus economic unit that it would have difficulty doing for itself if the surplus economic unit (SEU) were to deal directly with a
What role does depreciation play in calculating incremental cash flows? Depreciation expense is a tax deductible expense and hence influences cash flow by its effect on taxes.Dep
Bond management evolution to some extent is linked to the increased volatility of the interest rate term structures which is in existence since seventies. Bond valuatio
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