p 698 What Does Non Recurring Really Mean Q If a company takes a large

P 698 what does non recurring really mean q if a

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p. 698What Does “Non-Recurring” Really Mean?Q:If a company takes a large restructuring charge, what is the effect on the company’s currentincome statement versus future ones?A:The current period’s net income can be greatly diminished by a large restructuring charge,whilethe net income in future periods can be enhanced because they are relieved of costs (i.e., depre-ciation and labor expenses) that would have been charged to them.Authors’ Comments on All About You:Should I Play the Market Yet?, p. 702For a number of reasons, it is probably a bad idea for Rachael to buy her employer’s stock. First,if Rachael is going to invest in the stock market, she should diversify her investments across anumber of different companies.Second,you should never have more than a small portion of yourtotal investment portfolio invested in your employer. Suppose that your employer starts to dopoorly, the stock price falls, and you get laid off.You lose on two counts:You don’t have income,and your net worth has been affected adversely by the drop in the stock price. (This exact situa-tion happened to thousands of Enron employees, who not only lost their jobs, but their retire-ment savings as well, as Enron’s stock plummeted.) Third, after purchasing her employer’s stock,Rachael’s liquidity would be negatively affected: She would have only $3,000 of remaining liquidassets.If Rachel invests $7,000, she actually has only enough liquid assets to cover one month’s worthof expenses. It is true that she could sell her stock, but if it has fallen in value, she will be reluctantto sell. In short, if she were to buy the stock, her financial flexibility would be very limited.The bottom line is that we think that Rachael shouldinvest in something that offers a higherreturn than her bank savings account, but we question whether she has enough liquidity to investin individual stocks. We would recommend that she put some money in a stock mutual fund,some in a short-term CD, and the rest in a money-market fund.Answers to Self-Study Questions1.b2.d3.a4.c5.c6.c7.c8.b9.b10.a11.d12.c13.c14.d15.dBroadening Your Perspective725Remember to go back to the Navigator box on the chapter-opening page and check off your completed work.JWCL165_c14_674-725.qxd 8/16/09 7:46 AM Page 725
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