How is implied volatility used in the Black-Scholes formula?

June 30, 2024 No Comments

A: Implied volatility is derived from the Black-Scholes formula and is an important element for how the value of options are determined. Implied volatility is a measure of the estimation of the future variability for the asset underlying the option contract. The Black-Scholes model is

How is it possible for a company to have a negative enterprise value?

June 30, 2024 No Comments

A: Enterprise value is the measure of a company’s total value, including its outstanding equity value, outstanding debt, and cash or cash equivalents. When calculating enterprise value, cash and cash equivalents are subtracted from the market capitalization plus debt, so it is possible for a

How is market to market accounting different than historical cost accounting?

June 30, 2024 No Comments

A: Historical cost accounting and mark-to-market, or fair value, accounting are two methods used to record the price or value of an asset. Historical cost measures the value of the original cost of an asset, whereas mark to market measures the current market value of

How is salvage value used in depreciation calculations?

June 30, 2024 No Comments

A: When calculating depreciation, an asset’s salvage value is subtracted from its initial cost to determine total depreciation over the asset’s useful life. From there, accountants have several options to calculate each year’s depreciation. Depreciation measures an asset’s gradual loss of value over its useful

How is the economic order quantity model used in inventory management?

June 30, 2024 No Comments

A: The economic order quantity model is used in inventory management by calculating the number of units a company should add to its inventory with each batch order to reduce the total costs of its inventory. The costs of its inventory comprise holding costs and

How long are accounts receivable allowed to be outstanding?

June 30, 2024 No Comments

A: Since there are no specific legal requirements limiting the time period accounts receivable can be outstanding, in essence, they are allowed to remain for as long as the company owed money is willing to wait for payment. Accounts receivable are the sums of money

How long can a building owner or landlord depreciate a leasehold improvement?

June 30, 2024 No Comments

A: Leasehold improvements have different depreciation rules depending on whether you are working with U.S. tax basis financial reporting or U.S. generally accepted accounting principles (GAAP) financial reporting. For tax purposes, leasehold improvements are eligible to be depreciated over 15 years. The 15-year rule was

How much working capital does a small business need?

June 30, 2024 No Comments

A: The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating cycle and the business owners’ goals for future growth. However, while very large businesses can get by with negative working capital because of

How should a change in accounting principle be recorded and reported?

June 30, 2024 No Comments

A: A change in accounting principle is the term used when a business selects between different generally accepted accounting principles or changes the method with which a principle is applied. Changes can occur within accounting frameworks for either generally accepted accounting principles, or GAAP, or

How does proration affect asset depreciation?

June 30, 2024 No Comments

A: Accountants calculate an asset’s pro-rata depreciation during the first and final year of its service. The IRS established applicable convention for pro-rata asset depreciation, which represents an assumption about the date when the property is placed into service or retired. While the half-year convention

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