ACC120 Chapter Notes - Chapter 2: State Of Nature, Capital Asset, Income Statement
Document Summary
Provides utmost in relevant information (future economic prospects incl. dividends, cash flows, profitability) Concern however is if the relevant information is also reliable (faithfully represents the firm"s financial position and results from operations) Will explore conditions under which market values of a&l can serve as indirect measures of pv (true under ideal conditions); if not ideal conditions, fundamental problems created for asset valuation and income measurement. Certainty means future cash flows of firm and interest rate of economy are publicly known. Example 2. 1 (revise numbers to show originality) Nbv of capital asset at any year end is equal to its pv or value in use (pv of fcf discounted at x%) Accretion of discount: ex ante (exp. net income) will equal ex post (realized net income) because of ideal conditions of certainty. Relevance: dividend timing does not affect firm value under ideal conditions.
