Weis Markets accumulates large amounts of excess cash throughout the year. It typicallyinvests these funds in marketable securities until they are needed. The company’s most recentfinancial statements revealed a nearly $14 million unrealized gain on short-term investments.Footnotes to the financial statements disclosed that Weis reports its short-term investments atfair value.a. Explain the meaning of the company’s unrealized gain on short-term investments.b. How does the unrealized gain impact the company’s financial statements?c. Is the unrealized gain included in the computation of the company’s taxable income?Explain.d. Evaluate fair value accounting from the perspective of the company’s creditors.
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Weis Markets accumulates large amounts of excess cash throughout the year. It typically
invests these funds in marketable securities until they are needed. The company’s most recent
financial statements revealed a nearly $14 million unrealized gain on short-term investments.
Footnotes to the financial statements disclosed that Weis reports its short-term investments at
fair value.
a. Explain the meaning of the company’s unrealized gain on short-term investments.
b. How does the unrealized gain impact the company’s financial statements?
c. Is the unrealized gain included in the computation of the company’s taxable income?
Explain.
d. Evaluate fair value accounting from the perspective of the company’s creditors.
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