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Whitney Tilson, a noted analyst, warns investors in an article in The Motley Fool that more than any other type of company, financial companies have immense discretion regarding what earnings to report. The key is the rate of loan losses that they expect to experience, which must be estimated at the end of every period. By changing this estimate, which in turn changes one of the largest expenses on their income statement, financial companies can manage net income. Tilson specifically cites Farmer Mac, the agency created by the federal government to provide funds in the agricultural lending market, which many analysts believe smooths its earnings across time by simply changing its estimate on loss rates. REQUIRED:
a. What does it mean to "smooth earnings across time"? How might a financial company practice this strategy, and why might it engage in this activity?
b. Earnings smoothing has also been associated with conservatism. Why?
abandonment. henteleff inc. is considering a project with the following datayearinitial investmentand net cash
What is a stock redemption? What are some reasons for redeeming stock? Why are some redemption treated as sales and others as dividends?
which financial statement reports assets liabilities and stockholders equity?a income statement.b retained earnings
1. Suppose you take a mortgage for $72,764 for 16 years with annual payments. If the annual interest rate is 3.4%, calculate the total interest amount paid over the life of the loan. That is, calculate the total interest paid in 16 years.
Show that equation (5.3) is true by considering an investment in the asset combined with a short position in a futures contract. Assume that all income from the asset is reinvested in the asset.
discuss the following scenario staff members from the marketing department of your firm are doing a splendid job
U.S. corporate tax rate = 30% German corporate tax rate = 40% What is Pexi's cost of dollar-denominated equity? a. 12.0%. b. 11.2%. c. 10.0%. d. 7.2%.
suppose abc inc. a u.s. auto manufacturer obtains some of its auto components in mexico and that the costs of these
A firm has a sales level target of $200,000. If the variable cost is $120,000 and the fixed cost is $40,000. Find the degree of leverage of this company
In its most recent financial statements, Newhouse Inc. reported $35 million of net income and $350 million of retained earnings. The previous retained earnings were $333 million. How much dividends were paid to shareholders during the year?
Suppose instead Gartner decides to maintain a 50% debt-to-value ratio going forward. If Gartner’s debt cost of capital is 6.67%, what will Gartner’s levered value be in this case?
What is the forecasted market value of the 20-year bonds in four years? - Which investment is expected to provide a higher yield over the four-year period?
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