Why should sunk costs be ignored in future decision making?

July 9, 2024 No Comments

A: A sunk cost is a cost that cannot be recovered or changed and is independent of any future costs a business may incur. Since decision-making only affects the future course of business, sunk costs should be irrelevant in the decision-making process. Instead, a decision

Why would a company perform a reverse stock split?

July 9, 2024 No Comments

A: A company performs a reverse stock split to boost its stock price by decreasing the number of shares outstanding, which typically leads to an increase in the price per share. How a Reverse Split Works When a company does a reverse split, it cancels its current outstanding stock and distributes

Why do analysts sometimes give an overweight recommendation on a stock?

July 9, 2024 No Comments

A: Financial analysts give their opinions of the future performance of a security. They can give performance ratings of underweight, overweight and market perform to a security. If analysts give a stock an overweight rating, they expect the stock to outperform its industry in the

Will getting a student loan deferral hurt my credit score?

July 9, 2024 No Comments

A: A student loan deferral lets you postpone making payments on your student loan for a period of time. Your lender may approve your deferral request under a number of circumstances, including but not limited to temporary total disability, public service (e.g., the Peace Corps

Why do companies use reverse/forward stock splits?

July 9, 2024 No Comments

A: Companies will use reverse/forward stock splits mainly in an attempt to save future administrative costs. A reverse/forward stock split involves two corporate actions: first, the company will perform a reverse stock split, and will immediately follow with a forward stock split. The purpose of

Why do shareholders need financial statements?

July 9, 2024 No Comments

A: Shareholders need financial statements to evaluate their equity investments and help them make informed decisions as to how to vote on corporate matters. When evaluating investments, shareholders are able to glean meaningful data found on financial statements. There are a number of tools shareholders

Why do you need a margin account to short sell stocks?

July 9, 2024 No Comments

A: The reason that margin accounts and only margin accounts can be used to short sell stocks has to do with Regulation T, a rule instituted by the Federal Reserve Board. This rule is motivated by the nature of the short sale transaction itself and

Why does accumulated depreciation have a credit balance on the balance sheet?

July 9, 2024 No Comments

A: Accumulated depreciation is increased with a credit entry, although it is shown on the asset side of the balance sheet. Following the accounting equation, which is the basis for a balance sheet, assets must always be equal to liabilities plus equity. Assets, on the

Why is Average Collection Period important to a company?

July 9, 2024 No Comments

A: An average collection period shows the average number of days necessary to convert business receivables into cash. The degree to which this is useful for a business depends on the business’s relative reliance on credit sales to generate revenue; a high balance in accounts

Why is deferred revenue listed as a liability on the balance sheet?

July 9, 2024 No Comments

A: Deferred revenue, which is also referred to as unearned revenue, is listed as a liability on the balance sheet, because under accrual accounting, the revenue recognition process has not been completed, and the company’s product or service is still due to the buyer. When

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