lec9_MV_Blackboard

lec9_MV_Blackboard - Market Value Model Session Objectives...

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Unformatted text preview: Market Value Model Session Objectives Review earlier valuation models Introduce the accretion concept of income Comparison of Financial Accounting Models HC GPL RC MV Valuation HC HC RC MV Revenue recognition pt. pt. pt. accretion of of of sale sale sale production sale Market Value Measure of Performance Performance = sale of completed goods plus appreciation/depreciation in the market value of a firms net assets. Stage 1 Stage 2 Stage 3 Sale Assembly Finishing Packaging Performance Measurement - Conventional Accounting Assembly Finishing Packaging Point stage stage stage of sale RM = 10 TC 1 = 35 TC 2 = 60 REV 150 DL = 10 RM = 5 RM = 10 Exp 90 OH = 15 DL = 10 DL = 10 NOI 60 TC 1 = 35 OH = 10 OH = 10 TC 2 = 60 TC 3 = 90 Performance Measurement - Value-Added Assembly Finishing Packaging stage stage stage Rev = 50 Rev 50 Rev 50-TC 1 : Costs: Costs: RM = 10 RM = 5 RM = 10 DL = 10 DL = 10 DL = 10 OH = 15 35 OH = 10 25 OH = 10 30 Income 15 Income 25 Income 20 Total income = 60 Market Value Investment Fund Example 150m 100m 50m $ 1 2 3 M Transactions Analysis - Conventional Model Year 1 Cash + Investments = OE 1/1/1 Orig. invest. 50 50 4/1/1 Purch. M/S (50 ) 50 __ End. Bal. -0- 50 50 150m 100m 50m $ 1 2 3 M M Transactions Analysis - Conventional Model Year 2 Cash + Investments = OE 1/1/2 Beg. bal. -0- 50 50 12/31/2 End. bal. -0- 50 50 150m 100m 50m $ 1 2 3 M M M Transactions Analysis - Conventional Model Year 3 Cash + Investments = OE 1/1/3 Beg. bal. -0- 50 50 12/31/3 Sale of M/S 80 (50 ) 30 Gain 12/31/3 End. bal. 80 m -0- 80 m Transactions Analysis - Market Value Model Year 1 Cash + Investments = OE 1/1/1 Orig. invest. 50 50 4/1/1 Purch. M/S (50) 50 12/31 MV __ 50 50 Holding gain End. bal. -0- 100 100 Transactions Analysis - Market Value Model Year 2 Cash + Investments = OE 1/1/2 Beg. bal. -0- 100 100 12/31 MV ___ 50 50 HG 12/31/2 End. bal. -0- 150 150 Transactions Analysis - Market Value Model Year 3 Cash + Investments = OE 1/1/3 Beg. bal. -0- 150 150 12/31/3 Sale of M/S 80 (150 ) (70 ) Loss 12/31/3 End. bal. 80 m -0- 80 m Performance Comparison Year Conventional Market Value 1 -0- 50 2 -0- 50 3 30 (70 ) Total 30 30 Exercise 11 The Long-Term Investment Company was formed at the beginning of 2003 with $20,000 cash contributed by the partners. Immediately thereafter, the company purchased 5,000 shares of Long Island Central Railroad for $8,000, and 100 shares of Northestern Bell Corporation for $12,000. The partners believed this constituted a balance portfolio and decided to ignore the day to day fluctuations in market prices and hold on to the stock for long-term growth. On December 31, 2005, the stock was sold: Long Island Central for $10,000 and Northeastern Bell for $15,000....
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lec9_MV_Blackboard - Market Value Model Session Objectives...

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