By William Sinnett, Financial Executives Research Foundation
This informative Q&A kind record summarizes the problems and implications surrounding the potential for an industry-wide swap in accounting criteria from a spotlight on distinctive principles to a specialise in extensive rules. specialists from cost WaterhouseCoopers (PwC) and the monetary Accounting criteria Board (FASB) resolution thought-provoking questions on the influence of principles-based accounting criteria at the total.
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Additional info for Accounting Standards: Are We Ready for Principles-Based Guidelines
S. S. dollar-denominated returns FI-Beta ¼ Full-information beta for industry TBi ¼ Total beta for security i ¼ Country covariance with region bcr RPu E1FLAST02 08/26/2010 Page 33 Notation System and Abbreviations Used in This Book bcw Si Ui l RP1 . . S. S. , net cash flow) ¼ Dividend growth rate for company i ¼ Rate of growth in net income MATHEMATICAL FUNCTIONS S \ X G a e ei 1 N (*) D ¼ Sum of (add all the variables that follow) ¼ Product of (multiply together all the variables that follow) ¼ Mean average (the sum of the values of the variables divided by the number of variables) ¼ Geometric mean (product of the values of the variables taken to the root of the number of variables) ¼ Regression constant ¼ Regression error term ¼ Error term, difference between predicted return and realized return, Ri ¼ Infinity ¼ Cumulative normal density function (the area under the normal probability distribution) ¼ Change in .
Christopher Mercer, Valuing Financial Institutions (Homewood, IL: Business One Irwin, 1992), Chapter 13; and his article ‘‘The Adjusted Capital Asset Pricing Model for Developing Capitalization Rates,’’ Business Valuation Review (December 1989): 147–156. 2 Richard A. Brealey, Stewart C. Myers, and Franklin Allen, Principles of Corporate Finance, 9th ed. (Boston: Irwin McGraw-Hill, 2008), 18. E1C02 07/24/2010 Page 12 12 COST OF CAPITAL BASICS Notwithstanding, well-known author, professor, and consultant Dr.
1999 Cost of Capital Workshop, Chicago: Ibbotson Associates, 1999. 7 Richard A. Brealey, Stewart C. Myers, and Franklin Allen, Principles of Corporate Finance, 9th ed. (Boston: Irwin McGraw-Hill, 2008), 239. 4 E1C01 08/26/2010 Page 6 6 COST OF CAPITAL BASICS business. ’’8 When a business uses a given cost of capital to evaluate a commitment of capital to an investment or project, it often refers to that cost of capital as the hurdle rate. The hurdle rate is the minimum expected rate of return that the business would be willing to accept to justify making the investment.