The attitude of investors to investments based on track record of the company. Introduction: As the earnings of the company increases the share value increases and the cost of capital decreases.

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Chapter 9, Problem 9.21P

Summary Introduction

To discuss:

The attitude of investors to investments based on track record of the company.

Introduction:

As the earnings of the company increases the share value increases and the cost of capital decreases.

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Companies often are under pressure to meet or beat Wall Street earnings projections in order to increase stock prices and also to increase the value of stock options. Such pressure may cause some managers to alter their estimates for depreciation to artificially create desired results.Required: 1. Understand the reporting effect: Do estimates by management affect the amount of depreciation in its company’s financial statements? 2. Specify the options: To increase earnings in the initial years following the purchase of a depreciable asset, would management (a) choose straight-line or double-declining balance, (b) estimate a longer or shorter service life, and (c) estimate a higher or lower residual value? 3. Identify the impact: Are decisions of investors and creditors affected by accounting estimates? 4. Make a decision: Should a company alter depreciation estimates for the sole purpose of meeting expectations of Wall Street analysts?

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Answer 2

Question

Chapter 9, Problem 9.21P

Summary Introduction

To discuss:

The attitude of investors to investments based on track record of the company.

Introduction:

As the earnings of the company increases the share value increases and the cost of capital decreases.

Expert Solution & Answer

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Answer 3

Question

Chapter 9, Problem 9.21P

Summary Introduction

To discuss:

The attitude of investors to investments based on track record of the company.

Introduction:

As the earnings of the company increases the share value increases and the cost of capital decreases.

Expert Solution & Answer

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Answer 4

Question

Chapter 9, Problem 9.21P

Summary Introduction

To discuss:

The attitude of investors to investments based on track record of the company.

Introduction:

As the earnings of the company increases the share value increases and the cost of capital decreases.

Expert Solution & Answer

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Check out a sample textbook solution

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Answer 5

Chapter 9, Problem 9.21P

Summary Introduction

To discuss:

The attitude of investors to investments based on track record of the company.

Introduction:

As the earnings of the company increases the share value increases and the cost of capital decreases.

Answer 6

Chapter 9, Problem 9.21P

Summary Introduction

To discuss:

The attitude of investors to investments based on track record of the company.

Introduction:

As the earnings of the company increases the share value increases and the cost of capital decreases.

Answer 7

Chapter 9, Problem 9.21P

Summary Introduction

To discuss:

The attitude of investors to investments based on track record of the company.

Introduction:

As the earnings of the company increases the share value increases and the cost of capital decreases.

Answer 8

Expert Solution & Answer

Answer 9

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Answer 10

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Answer 11

Ch. 9.1 - What is the cost of capital?Ch. 9.1 - Prob. 9.2RQ Ch. 9.1 - Prob. 9.3RQ Ch. 9.1 - What are the typical sources of long-term capital...Ch. 9.2 - Prob. 9.5RQ Ch. 9.2 - Prob. 9.6RQ Ch. 9.2 - Prob. 9.7RQ Ch. 9.3 - How would you calculate the cost of preferred...Ch. 9.4 - What premise about share value underlies the...Ch. 9.4 - How do the constant-growth valuation model and...

The attitude of investors to investments based on track record of the company. Introduction: As the earnings of the company increases the share value increases and the cost of capital decreases.

Solution Summary: The author explains that GE's long track record makes it less risky for investors. However, if investors realize that the company is riskier, they would not be interested in investing in the shares.

Concept explainers

To discuss:

The attitude of investors to investments based on track record of the company.

Introduction:

As the earnings of the company increases the share value increases and the cost of capital decreases.

Want to see the full answer?

Chapter 9 Solutions

The attitude of investors to investments based on track record of the company. Introduction: As the earnings of the company increases the share value increases and the cost of capital decreases.

Solution Summary: The author explains that GE's long track record makes it less risky for investors. However, if investors realize that the company is riskier, they would not be interested in investing in the shares.

Concept explainers

To discuss: The attitude of investors to investments based on track record of the company. Introduction: As the earnings of the company increases the share value increases and the cost of capital decreases.

Want to see the full answer?

Chapter 9 Solutions

To discuss:

The attitude of investors to investments based on track record of the company.

Introduction:

As the earnings of the company increases the share value increases and the cost of capital decreases.