Why should sunk costs be ignored in future decision making?

July 7, 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 buy back its own shares?

July 7, 2024 No Comments

A: Stock buybacks refer to the repurchasing of shares of stock by the company that issued them. A buyback occurs when the issuing company pays shareholders the market value per share and re-absorbs that portion of its ownership that was previously distributed among public and private

Why would a company perform a reverse stock split?

July 7, 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

Will getting a student loan deferral hurt my credit score?

July 7, 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 shareholders need financial statements?

July 7, 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 is Average Collection Period important to a company?

July 7, 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 7, 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

Which is better for capital budgeting – IRR or NPV?

July 7, 2024 No Comments

A: In capital budgeting, there are a number of different approaches that can be used to evaluate any given project, and each approach has its own distinct advantages and disadvantages. All other things being equal, using internal rate of return (IRR) and net present value

Which is better: A high or low equity multiplier?

July 7, 2024 No Comments

A: An equity multiplier measures a company’s financial leverage by using a ratio of the company’s total assets to its stockholders’ equity. Generally, a lower equity multiplier indicates a company has lower financial leverage. It is better to have a low equity multiplier, because a

Which metric should I pay more attention to, EV/EBITDA or P/E?

July 7, 2024 No Comments

A: The price-to-earnings (P/E) ratio is one of the most popular and widely used financial metrics, but it has a number of inherent flaws for which the enterprise value to EBITDA (EV/EBITDA) ratio compensates. The EV/EBITDA ratio is a financial metric that measures the return

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