Problem1. Answer the following problems:
i) How does the GAAP reporting technique cause cash flows to differ from net income?
ii) How are the features of the Income Statement, Balance Sheet, and Statement of Cash Flow employed in both the GAAP and IFRS reporting techniques?
iii) Does it make sense to adapt a worldwide standard for financial reporting? Should this be mandated or voluntary?
iv) Compute some of the potential costs and benefits of switching from GAAP to IFRS.
Promble2. Suppose you currently own $10,000 of IBM stock, and have the additional $15,000 you wish to invest. You have narrowed the alternatives to two:
(i) An investment in Treasury Bills
(ii) An investment in Homestake Gold Mining. (The whole $15,000 will be invested in one of the two alternatives.)
(a) Given the subsequent information, find out the anticipated returns and standard deviations of the two alternative portfolios.
Expected Return Standard Deviation
Treasury Bill 10% 0
Homestake Gold Mining 9% 25%
IBM 18% 20%
The correlation coefficient between IBM and Homestake Gold Mining is? 0.3.
(b) Which investment would you select? Why?
Problem3. Crown Cinema recently increased the price of a movie ticket by 5%. As a result, attendance dropped by 8%. Based on this information, what is the price elasticity of demand for movie tickets at Crown? What, if any, other factors could have accounted for some of decline in attendance leading to an overinflated price elasticity of demand? If the cinema lessens its prices by 5% instead of raising its prices by 5%, what change in attendance would you anticipate? If a competing cinema reduced its prices by 10%, how would you anticipate this action to affect demand at Crown? How should the cinema find out an optimal ticket price?