Chapter 15- 16 Critical Thinking Questions

Contingent situation is a potential negative event that may occur in the future, such as economic recession, natural disaster, fraudulent activity, or a terrorist attack. Contingencies can be prepared for, but often the nature and scope of such negative events are unknowable in advance. Companies and investors plan for various contingencies through analysis and implementing protective measures. Describe how accountants may help to mitigate the impact of these risks on profitability? (350 words)

What are some of the risks an investor would face when investing in a stock? In addition to the business risk coming from the type of business environment that your company operates in, what additional risk would be of concern to an investor? The company might be mismanaged and do poorly or go out of business. The company's stock market return might be wildly unpredictable as the operating performance might be unstable. The company's competitors might do a better job and take market share away? The list goes on and on... What risks would you face if you bought 100 shares of Tesla?

Mr. Abdullah is an auditor in XYZ LLC. His job is to see the correctness of financial statements and to give suggestions. He came to know that his company is entering into a new product line, so he started discussing about it on various places and about its projection in the future. In this situation there is a chance of _________________. a. None of the options b. Familiarity threat c. Self review threat d. Advocacy threat Clear my choice

You are an investor who is looking for a place to invest your money. Previous investments have led you to feel that you are only interested in public, unregulated companies. You must choose a company that has not been used in previous course work, where you will now invest your money. Based on publicly available information you are to do a complete strategic analysis of the company. Tips: Clothing companies do not make good choices because their reporting dates do not match standard reporting of economic data. The result of your research will be your opinion, backed by your analysis, and use of evidence (use 6th edition APA) and reasons why you would personally invest in this company as well as why people wish to be employed at this company. What makes it attractive to employees? You may think of this as an evaluation of the firm for investment purposes. Ensure that you select a company that has data available for conducting the needed analyses. Do due diligence right at the beginning…

Explain in full detail why the following statement is false:   "Financial managers should not focus on the present stock value of the company. Instead, they should focus on the profitability of the company. Doing so will result in increasing the value of the stock.

Why is the study of financial management important? Offer examples of how poor financial management can ruin a company. Provide specific real-life examples to back up your assertions.

What is NOT a question that needs to be answered when completing financial due diligence? A. Is the company worth what it seems to be? B. Is the deal worth doing? C. All of these choices are questions that need to be answered l. D. Are these any major risks that could be a problem?

In a strategy meeting, the computer manufacturing company's president said, "If we raised the price of our product, the company's break-even point will be lower." The financial vice president responded by saying, "The company will also be less likely to incur a loss." As a management accountant would you agree or disagree with these statements and why?

What are some of the non-financial factors you would consider if you were faced with a decision related to keeping or terminating a business segment? Can you think of a time when you experienced a dropped segment? Were there consequences other than financial that affected the company?

You are the founder of IGRO, an Internet firm that delivers groceries. a. Give an example of an idiosyncratic risk and a systematic risk your company faces. b. As founder of the company, you own a significant portion of the firm, and your personal wealth is highly concentrated in IGRO shares. What are the risks you face, and how should you try to reduce them? c. Given your answer to part b, do you think it is a good idea for lower level employees to have large amounts of stock in their savings when that stock is issued by their employer? Is there an upside, as well as a downside?

You are considering an investment in a new start-up company, Giraffe Inc., an Internet service provider. A review of the company’s financial statements reveals a negative retained earnings. In addition, it appears as though the company has been running a negative cash flow from operating activities since the company’s inception.How is the company staying in business under these circumstances? Could this be a good investment?

Seeking to maximise the current year’s profit is not a sensible objective for most businesses for several reasons. Which is the only one of the following that is not such a reason? Group of answer choices It can be achieved by increasing the number of shareholders. It ignores wealth generation. It ignores risk. It ignores longer term profitability.

Jordan’s response about the financial statement impact of Alpha’s decision to capitalize thecost of its new computer system is most likely correct with respect to:A. lower net income.B. lower total assets.C. higher cash flow from operating activities.

Which one of the following actions by a financial manager creates an agency problem?   Lowering selling prices that will result in increased firm value   Agreeing to expand the company at the expense of stockholders' value   Borrowing money when doing so creates value for the firm   Agreeing to pay management bonuses based on the market value of the firm's stock

Business risk is  A) the risk of bad business strategy or management decisions being madeB) the risk that a company will be unable to meet its financial obligationsC) the risk of not being able to close out your position quickly and at a fair priceD) the risk of prices going up or downE)  also known as inflation risk

James Madison was brought in as assistant to Computron’s chairman, who had the task of getting the company back into a sound financial position.  Madison must prepare an analysis of where the company is now, what it must do to regain its financial health, and what actions to take. Your assignment is to help her answer the following questions, using the recent and projected financial information shown next. Provide clear explanations, not yes or no answers. Calculate the profit margin? operating profit margin? basic earning power (BEP)? return on assets (ROA)? and return on equity (ROE). What can you say about these ratios?