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principle of managerial finance answer sheet

principle of managerial finance answer sheet - e.EVA uses...

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e. EVA uses profits as the estimate of cost and benefits. Profits ignore the important points of timing, cash flow, and risk, three important factors to determining the true impact on shareholders' wealth. 1-3 LG 2: Annual Income versus Cash Flow for a Period a . Sales $760,000 Cost of good sold 300,000 Net profit $460,000 b . CashReceipts $690,000 Cost of good sold 300,000 Net cash flow $390,000 c . The cash flow statement is more useful to the financial manager. The accounting net income includes amounts that will not be collected and, as a result, do not contribute to the wealth of the owners. 1-4
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LG 4: Identifying Agency Problems, Costs, and Resolutions a . In this case the employee is being compensated for unproductive time. The company has to pay someone to take her place during her absence. Installation of a time clock that must be punched by the receptionist every time she leaves work and returns would result in either: (1) her returning on time or (2) reducing the cost to the firm by reducing her pay for the lost work.
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