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Raising debt does not dilute the ownership stake of current investors. Because it is cheaper than equity, a common question is: why not just fund the entire company with debt? Equity is also an important component in a company because it...
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Dividends received class under operating activities, because they reflect income earned. Under IFRS there are more permutations. Classification is at the discretion of the accountant, as long it maintains a consistent policy: Dividends paid: may be...
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When prices are rising in an inflationary environment this will result in the most expensive costs of production being accounted for in the income statement. Conversely, in the balance sheet the inventory being held will not reflect the higher value that it is worth in the market. Whereby COGS are understated and the balance sheet will be inflated. What does the DuPont Model measure? Return on Equity. Name two line items that would fall into other comprehensive income. Other comprehensive income shows items that have been exluded from net income on the income statement. Items appear in other comprehensive income when they have not yet been realized. Items become realized when their underlying transaction has been completed, for example, when an investment is sold. There is more to interviewing than tricky technical questions, so these are intended merely as a guide.
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The correct answer is A. Their NPVs are all positive, and again, the three are all acceptable. However, if they are mutually exclusive, this would mean choosing only one project. If you were to pick one based on their internal rates of return, you would go for Y, reason being, its IRR is the highest. This decision would be wrong when we consider the sizes of their NPVs. The best decision would be going for the project with the highest NPV, and that is project Z.
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Thus, if projects are mutually exclusive, use the NPV method. Shortcomings of IRR As seen, there are some problems associated with the IRR mothod: The method assumes that all proceeds from a project are immediately reinvested in projects offering a rate of return equal to the IRR — this is very difficult in practice. It gives different rankings when the projects under comparison have different scales. Sometimes, the method may not provide a unique solution, especially when a project has a mixture of positive and negative cash flows during its productive life Reading 32 LOS 32f:.
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