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Unformatted text preview: 3. Historical costs can be objectively and precisely measured, whereas market values can be difficult to estimate, and different analysts would come up with different numbers. Thus, there is a tradeoff between relevance (market values) and objectivity (book values). 4. Depreciation is a non-cash deduction that reflects adjustments made in asset book values in accordance with the matching principle in financial accounting. Interest expense is a cash outlay, but it’s a financing cost, not an operating cost. 6. For a successful company that is rapidly expanding, capital outlays would typically be large, possibly leading to negative cash flow from assets. In general, what matters is whether the money is spent wisely, not whether cash flow from assets is positive or negative. 7. It depends on the company. It’s probably not a good sign for an established company, but it would be fairly ordinary for a start-up. 1...
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This note was uploaded on 10/08/2009 for the course BCOR 2200 taught by Professor Tomnelson during the Spring '08 term at Colorado.
- Spring '08