Small private companies are unlevered most of the time. They are not able to raise debt because they do not have cash flows. Hence interest expense is 0 (virtually zero interest expense). They have limited fixed assets (as you pointed out) hence they will have limited to negligible depreciation. TheRead more
Small private companies are unlevered most of the time. They are not able to raise debt because they do not have cash flows. Hence interest expense is 0 (virtually zero interest expense).
They have limited fixed assets (as you pointed out) hence they will have limited to negligible depreciation.
at T=1 it's .5 in each noode at T=2, it's.25 in 1st node, .5 in 2nd node & .25 in 3rd node at T=3, it's .125 in 1st node, .125+.25= .375 in 2nd node, similarly .375 in 3rd node & .125 in 4th node Hope you understood why we multiplied by .375 to get the exposure in 2nd & 3rd node
at T=1 it’s .5 in each noode
at T=2, it’s.25 in 1st node, .5 in 2nd node & .25 in 3rd node
at T=3, it’s .125 in 1st node, .125+.25= .375 in 2nd node, similarly .375 in 3rd node & .125 in 4th node
Hope you understood why we multiplied by .375 to get the exposure in 2nd & 3rd node
Remember the equation of FRP Forward/Spot= (1+interest rate of price currency)/ (1+ interest rate of base currency) In LHS, if forward > spot then obviously in RHS, interest rate of price currency will be greater(>) than interest rate of base currency. This balances the equation on b0th sides.Read more
Remember the equation of FRP
Forward/Spot= (1+interest rate of price currency)/ (1+ interest rate of base currency)
In LHS,
if forward > spot then obviously in RHS, interest rate of price currency will be greater(>) than interest rate of base currency.
Under both US GAAP & IFRS, impairment test is done at least annually. Impairment write-down is debited in the PL statement. Reversal of impairment write-down is not allowed under USGAAP whereas it's allowed under IFRS & amount should be credited in PL statement. The value of the intangible aRead more
Under both US GAAP & IFRS, impairment test is done at least annually.
Impairment write-down is debited in the PL statement. Reversal of impairment write-down is not allowed under USGAAP whereas it’s allowed under IFRS & amount should be credited in PL statement.
The value of the intangible asset is reduced by the impairment amount on the B/S.
Under IFRS, assets held for use & intangible assets with finite life:
Recoverable amount = Max (NRV, Value in use)
If recoverable amount > CV then asset is not impaired.
If recoverable amount < CV then asset is impaired.
Under USGAAP, assets held for use & intangible assets with finite life:
If CV > undiscounted future cash flows, the asset is said to be impaired.
if CV < undiscounted future cash flows, the asset is not said to be impaired.
Under USGAAP, the impairment amount is calculated with different formula.
Impairment amount= CV – FV
If FV not given then we should take “Value in use”
The calculation of intangible assets with infinite life is covered in Level 2
One reason can be that due to decline in inflation (rate), central bank will lower interest rates (expansionary monetary policy) to generate demand in the economy. Lower interest rates will lead to bond prices shoot up (yields declining). Hence investors move away from bonds & move towards otherRead more
One reason can be that due to decline in inflation (rate), central bank will lower interest rates (expansionary monetary policy) to generate demand in the economy. Lower interest rates will lead to bond prices shoot up (yields declining). Hence investors move away from bonds & move towards other asset classes. Also, interest rates on saving deposits go down. This situation leads consumers to spend rather than invest (higher spending), this can lead to more imports. Higher imports is buying foreign currency & selling domestic currency. This results in domestic currency depreciation.
Project A has favorable pattern of Cash Flows as majority of the cash flows will come during the initial years. Project B has unfavorable pattern of Cash Flows as majority of the cash flows will come during the later years. We will prefer project with favorable cash flow pattern.
Project A has favorable pattern of Cash Flows as majority of the cash flows will come during the initial years.
Project B has unfavorable pattern of Cash Flows as majority of the cash flows will come during the later years.
We will prefer project with favorable cash flow pattern.
Type 2 error over Type 1 error Type 2 error is fail to reject H0 (null hypothesis) when it's actually false. Type 1 error is rejecting the Ho (null hypothesis) when it's actually true. The phrase "It is better that the guilty go free, than the innocent are punished" means that it's better that we doRead more
Type 2 error over Type 1 error
Type 2 error is fail to reject H0 (null hypothesis) when it’s actually false.
Type 1 error is rejecting the Ho (null hypothesis) when it’s actually true.
The phrase “It is better that the guilty go free, than the innocent are punished”means that it’s better that we don’t do type 1 error even if we do type 2 error.
Type 1 error matlab Ho sahi tha lakin usko reject kardiye toh phrase yeh keh raha ki type 1 error nahi hona chahyie chahe type 2 error ho jaye chalega. Type 2 error matlab H0 galat tha lakin usko reject nahi kar paye.
Option C is the correct answer For example, a security in BSE trades at 200 but in NSE it trades at 205 hence there's a pricing error so when the first arbitrageur spots it, he/she sells the security at NSE at 205 & then with the help of proceeds buys the same security in BSE. This way the arbitRead more
Option C is the correct answer
For example, a security in BSE trades at 200 but in NSE it trades at 205 hence there’s a pricing error so when the first arbitrageur spots it, he/she sells the security at NSE at 205 & then with the help of proceeds buys the same security in BSE. This way the arbitrage gets eliminated.
Option A is wrong as engaging in arbitrage requires no capital because as you sell security in one market you get an upfront proceeds through which you buy the security in the other market. Arbitrage involves 0 risk & 0 capital
Option B is wrong because in an efficient market, arbitrage opportunity exists for a very short time interval. It gets eliminated as soon as someone spots it.
Private Company Valuation
Small private companies are unlevered most of the time. They are not able to raise debt because they do not have cash flows. Hence interest expense is 0 (virtually zero interest expense). They have limited fixed assets (as you pointed out) hence they will have limited to negligible depreciation. TheRead more
Small private companies are unlevered most of the time. They are not able to raise debt because they do not have cash flows. Hence interest expense is 0 (virtually zero interest expense).
They have limited fixed assets (as you pointed out) hence they will have limited to negligible depreciation.
Therefore, EBITDA is not useful.
Credit analysis models
at T=1 it's .5 in each noode at T=2, it's.25 in 1st node, .5 in 2nd node & .25 in 3rd node at T=3, it's .125 in 1st node, .125+.25= .375 in 2nd node, similarly .375 in 3rd node & .125 in 4th node Hope you understood why we multiplied by .375 to get the exposure in 2nd & 3rd node
at T=1 it’s .5 in each noode
at T=2, it’s.25 in 1st node, .5 in 2nd node & .25 in 3rd node
at T=3, it’s .125 in 1st node, .125+.25= .375 in 2nd node, similarly .375 in 3rd node & .125 in 4th node
Hope you understood why we multiplied by .375 to get the exposure in 2nd & 3rd node
See lessExchange Rates
Remember the equation of FRP Forward/Spot= (1+interest rate of price currency)/ (1+ interest rate of base currency) In LHS, if forward > spot then obviously in RHS, interest rate of price currency will be greater(>) than interest rate of base currency. This balances the equation on b0th sides.Read more
Remember the equation of FRP
Forward/Spot= (1+interest rate of price currency)/ (1+ interest rate of base currency)
In LHS,
if forward > spot then obviously in RHS, interest rate of price currency will be greater(>) than interest rate of base currency.
This balances the equation on b0th sides.
Option C is the answer.
I hope it’s clear.
Long lived asset
Under both US GAAP & IFRS, impairment test is done at least annually. Impairment write-down is debited in the PL statement. Reversal of impairment write-down is not allowed under USGAAP whereas it's allowed under IFRS & amount should be credited in PL statement. The value of the intangible aRead more
Under both US GAAP & IFRS, impairment test is done at least annually.
Impairment write-down is debited in the PL statement. Reversal of impairment write-down is not allowed under USGAAP whereas it’s allowed under IFRS & amount should be credited in PL statement.
The value of the intangible asset is reduced by the impairment amount on the B/S.
Under IFRS, assets held for use & intangible assets with finite life:
Recoverable amount = Max (NRV, Value in use)
If recoverable amount > CV then asset is not impaired.
If recoverable amount < CV then asset is impaired.
Under USGAAP, assets held for use & intangible assets with finite life:
If CV > undiscounted future cash flows, the asset is said to be impaired.
if CV < undiscounted future cash flows, the asset is not said to be impaired.
Under USGAAP, the impairment amount is calculated with different formula.
Impairment amount= CV – FV
If FV not given then we should take “Value in use”
The calculation of intangible assets with infinite life is covered in Level 2
inflation
One reason can be that due to decline in inflation (rate), central bank will lower interest rates (expansionary monetary policy) to generate demand in the economy. Lower interest rates will lead to bond prices shoot up (yields declining). Hence investors move away from bonds & move towards otherRead more
One reason can be that due to decline in inflation (rate), central bank will lower interest rates (expansionary monetary policy) to generate demand in the economy. Lower interest rates will lead to bond prices shoot up (yields declining). Hence investors move away from bonds & move towards other asset classes. Also, interest rates on saving deposits go down. This situation leads consumers to spend rather than invest (higher spending), this can lead to more imports. Higher imports is buying foreign currency & selling domestic currency. This results in domestic currency depreciation.
See lessCapital Budgeting
Project A has favorable pattern of Cash Flows as majority of the cash flows will come during the initial years. Project B has unfavorable pattern of Cash Flows as majority of the cash flows will come during the later years. We will prefer project with favorable cash flow pattern.
Project A has favorable pattern of Cash Flows as majority of the cash flows will come during the initial years.
Project B has unfavorable pattern of Cash Flows as majority of the cash flows will come during the later years.
We will prefer project with favorable cash flow pattern.
See lessHypothesis- Ans is B , can someone explain the logic?
Type 2 error over Type 1 error Type 2 error is fail to reject H0 (null hypothesis) when it's actually false. Type 1 error is rejecting the Ho (null hypothesis) when it's actually true. The phrase "It is better that the guilty go free, than the innocent are punished" means that it's better that we doRead more
Type 2 error over Type 1 error
Type 2 error is fail to reject H0 (null hypothesis) when it’s actually false.
Type 1 error is rejecting the Ho (null hypothesis) when it’s actually true.
The phrase “It is better that the guilty go free, than the innocent are punished” means that it’s better that we don’t do type 1 error even if we do type 2 error.
Type 1 error matlab Ho sahi tha lakin usko reject kardiye toh phrase yeh keh raha ki type 1 error nahi hona chahyie chahe type 2 error ho jaye chalega. Type 2 error matlab H0 galat tha lakin usko reject nahi kar paye.
Hope it’s clear.
See lessAnswer to question 24 with explanation
Option C is the correct answer For example, a security in BSE trades at 200 but in NSE it trades at 205 hence there's a pricing error so when the first arbitrageur spots it, he/she sells the security at NSE at 205 & then with the help of proceeds buys the same security in BSE. This way the arbitRead more
Option C is the correct answer
For example, a security in BSE trades at 200 but in NSE it trades at 205 hence there’s a pricing error so when the first arbitrageur spots it, he/she sells the security at NSE at 205 & then with the help of proceeds buys the same security in BSE. This way the arbitrage gets eliminated.
Option A is wrong as engaging in arbitrage requires no capital because as you sell security in one market you get an upfront proceeds through which you buy the security in the other market. Arbitrage involves 0 risk & 0 capital
Option B is wrong because in an efficient market, arbitrage opportunity exists for a very short time interval. It gets eliminated as soon as someone spots it.
INCOME STATEMENT
It'll be shown under Other Income in the I/S
It’ll be shown under Other Income in the I/S
Currency exchange rate
IND/USD =76 1 USD = 76 INR Now, IND/USD appreciated to 80 1 USD = 80 INR Hence we can say that USD appreciated & INR depreciated.
IND/USD =76
1 USD = 76 INR
Now, IND/USD appreciated to 80
1 USD = 80 INR
Hence we can say that USD appreciated & INR depreciated.
See less