Introduction to Financial Management, Accounting Concepts

Q : Suppose XYZ Company must pick between two projects that each require an initial $10,000 outlay for facilities. The cash flows yielded by each investment for the first 5-years (years 1-5 consecutively) are:

Project A: +800, +600, 0, +400, +900

Project B: -1,000, +2,000, -2,000, +5,000, +6,000

Discuss the following:

1. Contrast the projects in terms of their risk/return relationship

2. Contrast the projects in terms of their potential for problems in the area of viability (liquidity/solvency).

“Review Chapter 1 Word file the end-of-chapter Key Terms, Questions and Solutions.

Chapter 3

Discuss the following.

1. Suppose Joe Francis owns a Chevrolet Dealership called “Joe’s Chevrolet.” Joe charges all his personal gasoline purchases on the dealership and these amounts are reported among the dealership’s operating expenses. How does this violate the economic entity concept?

2. Suppose Joe’s Chevrolet reports assets in the following way:

Assets Owned:

Building ………………………………………. 10,000 square feet total space, constructed in 1998.

Inventory…………………………………….. 100 vehicles total, 75 new units, 25 used.

How does this violate the monetary unit concept?

3. Suppose Joe’s Chevrolet’s financial report reflects Assets of $500,000 and Liabilities of $400,000. There are 10,000 shares of common stock and therefore an accounting book value of $10 per share.

Given the limitation of accounting to reliably measure intangible assets, would you expect the $10 per share to be a good estimate of the fair market value per share?

you can Accounting Concepts. Two concepts underlying financial reporting are introduced: the economic entity concept, and the monetary unit concept. In addition, two types of assets are tangible and intangible assets

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