scholarly journals The Value of Intangibles for Decision Analysis under the Influence of a Pandemic

2021 ◽  
pp. 1-6
Author(s):  
Jeffrey E Jarrett ◽  
Keyword(s):  
Property Rights ◽  
Decision Process ◽  
Financial Models ◽  
Capital Budgeting ◽  
Cash Flows ◽  
Financial Accounting ◽  
Present Value ◽  
Analytic Process ◽  
Value Of Cash

The abandonment option under various capital budgeting models are discussed in this manuscript to bring forth the notion that present value of cash flows is often improperly estimated in the financial models utilized in the decision analytic process. In this study, intellectual property rights and other intangible assets often are often not considered in accounting estimation processes utilized in financial accounting. A decision maker often utilizes misestimates of the present value of cash flow resulting in less-than-optimum capital budgeting decisions. Decisions to abandon for salvage and other similar decisions improve when the present value of intangibles and property rights are included in the decision process. This last statement is the goal of this study as well as to present well-founded processes to improve abandonment and similar decisions in capital budgeting decisions. The estimation problem in financial accounting is included in the analysis to accomplish this goal. In addition the role of a Pandemic is emphasized

scholarly journals Analysts’ Forecasts, the Abandonment Option and Intellectual Capital

2018 ◽  
Vol 8 (4) ◽  
pp. 370
Author(s):  
Jeffrey E. Jarrett
Keyword(s):  
Property Rights ◽  
Intellectual Capital ◽  
Decision Process ◽  
Financial Models ◽  
Capital Budgeting ◽  
Cash Flows ◽  
Financial Accounting ◽  
Present Value ◽  
Analytic Process ◽  
Value Of Cash

The abandonment option under various capital budgeting models are discussed in this manuscript to bring forth the notion that present value of cash flows is often improperly estimated in the financial models utilized in the decision analytic process. In this study, Intellectual Property Rights and other intangible assets often are not considered in accounting estimation processes utilized in financial accounting. A decision maker often utilizes misestimates of the present value of cash flow resulting in less than optimum capital budgeting decisions. Decisions to abandon for salvage and other similar decisions improve when the present value of intangibles and property rights are included in the decision process. This last statement is the goal of this study and to present well founded processes to improve abandonment and similar decisions in capital budgeting decisions. The estimation problem in financial accounting is included in the analysis to accomplish this goal.

scholarly journals Estimation Theory in Financial Accounting as It Applies to Valuing Intellectual Property Assets

2021 ◽  
Vol 8 (11) ◽  
pp. 186-196
Author(s):  
Jeffrey Jarrett
Keyword(s):  
Intellectual Property ◽  
Property Rights ◽  
Decision Process ◽  
Financial Models ◽  
Capital Budgeting ◽  
Cash Flows ◽  
Estimation Theory ◽  
Financial Accounting ◽  
Present Value ◽  
Decision Analytics

The abandonment option under various capital budgeting models are discussed in this study to illustrate the notion that present value of cash flows is often improperly estimated in financial models utilizing decision analytics in estimation theory as it applies in financial accounting. In this study, intellectual property rights and other intangible assets which are often not considered in the accounting estimation processes utilized in financial accounting. An investor/analyst often misestimates cash flow resulting in less-than-optimum capital budgeting decisions. This is especially a problem when actions to abandon for salvage and other similar decisions improve when the present value of intangibles and property rights are included in the decision process. This last statement is the goal of this study as well as to present well-founded processes to improve abandonment and similar decisions in capital budgeting decisions. The estimation problem in financial accounting is included in the analysis to accomplish this goal.

scholarly journals Reinvestment Bias When Analyzing Mutually Exclusive Assets

2011 ◽  
Vol 2 (3) ◽  
pp. 71
Author(s):  
Robert J. Sweeney
Keyword(s):  
Net Present Value ◽  
Capital Budgeting ◽  
Cash Flows ◽  
Rate Of Return ◽  
Internal Rate Of Return ◽  
Present Value ◽  
Internal Rate ◽  
Current Period ◽  
The Cost ◽  
Flows Over Time

Capital budgeting decisions generally involve the commitment of resources in the current period to secure positive cash flows over time that generate a rate of return in excess of the cost of the funds invested. The most common techniques used to perform this analysis are the Net Present Value (NPV) and the Internal Rate of Return (IRR).Conceptually, these two techniques are substitutable; i.e. the resulting decision from a NPV analysis is identical to the decision from an IRR analysis. In practice, however, the NPV and the IRR can, on occasion, produce conflicting decisions. Specifically, when analyzing mutually exclusive assets the Net Present Value can support one asset while the Internal Rate of Return supports the other. The purpose of this paper is twofold; first, to highlight structural deficiencies in the conventional application of the NPV and the IRR, and second, to demonstrate a procedure to correct for these structural errors.

CAPITAL BUDGETING: A FUZZY SET APPROACH FOR DETERMINING EXPECTED VALUE OF CASH FLOWS

1995 ◽  
Vol 3 (1) ◽  
pp. 105-125
Author(s):  
Khursheed Omer ◽  
Andre de Korvin ◽  
Philip H. Siegel
Keyword(s):  
Fuzzy Set ◽  
Capital Budgeting ◽  
Cash Flows ◽  
Expected Value ◽  
Value Of Cash

scholarly journals The FASBs Concepts Statement On Cash Flows And Present Value

2011 ◽  
Vol 19 (4) ◽  
Author(s):  
Stanley Martens ◽  
Thomas Berry
Keyword(s):  
Cash Flow ◽  
Accounting Standards ◽  
Fair Value ◽  
Cash Flows ◽  
Financial Accounting ◽  
Financial Accounting Standards Board ◽  
Present Value ◽  
Numerical Examples ◽  
Flow Information

In February 2000, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Concepts No. 7, Using Cash Flow Information and Present Value in Accounting Measurements.  In this document the FASB asserts without proof that a present value computation along its lines will provide a good estimate of the fair value of an asset or liability.  Using numerical examples provided by the FASB, we attempt to construct arguments in support of the FASB’s claim.  We find that such arguments require strong and not at all obvious assumptions about players in hypothetical markets.

scholarly journals The Extent of Using and Trusting Capital Budgeting Methods in Projects Appraisal in Palestinian Corporations

2018 ◽  
Vol 12 (6) ◽  
pp. 151
Author(s):  
Ahmad N. H. Anabtawi
Keyword(s):  
Net Present Value ◽  
Capital Budgeting ◽  
Cash Flows ◽  
Payback Period ◽  
The Other ◽  
Present Value ◽  
Internal Rate ◽  
Public Corporations ◽  
Rate Of Returns ◽  
Accounting Rate

This research paper aims to find the degree of the use as well as the trust of the Net Present Value (NPV), Payback Period (PBP), Internal Rate of Returns (IRR) and Accounting Rate of Returns (ARR) as a key capital budgeting method. The research conducted on the listed corporations in Palestine which are 48 company. A questionnaire distributed on 77 financial and project/operations managers in these corporations with 67 responds. The result shows that both discounted and non-discounted cash flows methods are used and trusted by Palestine public corporations. However, on the other hand, the above four methods are volatile in term of use and trust. The most used and trusted capital budgeting method is the Payback period (PBP). This followed by the Net Present Value (NPV). Accounting Rate of Retunes (ARR) becomes third. Thus the least used and trusted method is the Internal Rate of Returns (IRR). 

A New Approach to Capital Budgeting in Closely-Held Firms and Small Firms

1981 ◽  
Vol 5 (4) ◽  
pp. 30-35 ◽  
Author(s):  
Thomas H. McInish ◽  
Ronald J. Kudla
Keyword(s):  
Small Firms ◽  
Net Present Value ◽  
Cost Of Capital ◽  
Weighted Average ◽  
Capital Budgeting ◽  
Cash Flows ◽  
Separation Principle ◽  
Discount Rates ◽  
Present Value ◽  
Investor Returns

The traditional application of the net present value method in capital budgeting involves the use of market derived discount rates such as the cost of capital. Justification of these discount rates stems from the separation principle that states that investment decisions can be made independent of shareholders' tastes and preferences. The purpose of this paper is to show that the separation principle does not hold for closely-held firms and small firms, and, accordingly, market-derived discount rates are inappropriate. Two capital budgeting techniques which are appropriate for these firms are presented. Accept/reject decisions for capital budgeting projects are often made using a technique known as “net present value” (NPV).1 Using the NPV method, acceptable projects are those for which the project's cost is less than the present value of the project's cash flows discounted at the firm's cost of capital; in other words, acceptable projects have a positive NPV. The firm's cost of capital is usually taken to be the weighted average of the firm's cost of equity and debt as measured by investor returns in the capital markets. Justification for use of a discount rate, determined by reference to market-wide investor returns, is based on “the separation principle” which asserts that corporations can make capital budgeting decisions independently of their shareholders' views.2 But because a critical assumption of the separation principle is that shares are readily marketable, it is likely that the separation principle and, hence, market-determined discount rates are inappropriate for closely-held firms and small firms.3 In this paper, we discuss two capital budgeting approaches which are applicable to firms whose shares are not readily marketable. This paper is divided into five sections. First, we discuss the traditional net present value approach to capital budgeting and, then, we indicate in detail, why it may not be suitable for use by closely-held firms and small firms. In the third and fourth sections, we explain two capital budgeting techniques which may be appropriate for use by these firms. Finally, we summarize our conclusions.

Valuation of the Firm in the Presence of Temporary Book-Tax Differences: The Role of Deferred Tax Assets and Liabilities

2000 ◽  
Vol 75 (1) ◽  
pp. 1-12 ◽  
Author(s):  
David A. Guenther ◽  
Richard C. Sansing
Keyword(s):  
Financial Reporting ◽  
Market Value ◽  
Cash Flows ◽  
Present Value ◽  
Deferred Tax Assets ◽  
Tax Deductions ◽  
Deferred Tax Liabilities ◽  
Deferred Tax ◽  
Future Cash Flows

This study uses an analytical model to investigate the value of the firm when there are temporary differences between when revenue and expense items are recognized for tax- and financial-reporting purposes. The model shows that deferred tax assets and liabilities transform book values of underlying liabilities and assets into estimates of the after-tax cash flows on which the firm's market value is based. The analysis shows that if tax deductions are taken on a cash basis, and if the underlying assets and liabilities are recorded at the present value of their associated future cash flows, then the value of deferred tax assets and deferred tax liabilities is their recorded amount, regardless of when the asset will be realized or when the liability will reverse. If tax deductions are not taken when the expenditure is made (e.g., depreciation) or if underlying assets and liabilities are recorded at more than the present value of their associated future cash flows (e.g., warranty liabilities), then the market value of deferred tax assets and deferred tax liabilities is less than their recorded values. The value of the deferred tax account is independent of when that account will reverse.

scholarly journals SEQUENTIAL CAPITAL INVESTMENT DECISION MAKING UNDER EXTREME CASH FL OW SITUATIONS: EVIDENCE USING MONTE CARLO SIMULATION

2015 ◽  
Vol 16 (5) ◽  
pp. 877-900 ◽  
Author(s):  
Wenqing Zhang ◽  
Prasad Padmanabhan ◽  
Chia-Hsing Huang
Keyword(s):  
Monte Carlo Simulation ◽  
Monte Carlo ◽  
Capital Investment ◽  
Net Present Value ◽  
Capital Budgeting ◽  
Cash Flows ◽  
Present Value ◽  
Short Term ◽  
Value Analysis

Uncertainty influences a decision maker's choices when making sequential capital investment decisions. With the possibility of extremely negative cash inflows, firms may need to curtail operations significantly. Traditional Net Present Value analysis does not allow for efficient management of these problems. In addition, firm managers may behave irrationally by accepting negative Net Present Value projects in the short term. This paper presents a Monte Carlo simulation based model to provide policy insights on how to incorporate extreme cash flows and manager irrationality scenarios into the capital budgeting process. This paper presents evidence that firms with irrational managers and experiencing extremely negative cash flows may, under certain conditions, reap long term rewards associated with the acceptance of negative Net Present Value projects in the short term. These benefits are largest if cost ratios (discount rates) are small, or investment horizons are high. We argue that acceptance of short term negative Net Present Value projects implies the purchase of a long term real option which can generate positive long term cash flows under certain conditions.

scholarly journals The Review of Literature on the Role of Earnings, Cash Flows and Accruals in Predicting of Future Cash Flow

2017 ◽  
Vol 6 (2) ◽  
pp. 59 ◽  
Author(s):  
Mwila Joseph Mulenga ◽  
Meena Bhatia
Keyword(s):  
Cash Flow ◽  
Capital Market ◽  
Accounting Information ◽  
Cash Flows ◽  
Financial Accounting ◽  
Accounting Standard ◽  
Future Cash Flow ◽  
Accounting Research ◽  
Future Cash Flows

AbstractResearch on the relative ability of accounting information aims in examining the ability of accounting information to predict future cash flow and earnings, based on the assertion given by Financial Accounting Standard Board (FASB) which states that the earnings and its components  have a better predictive power than cash flow itself (FASB,1978 para 44). Many studies have been conducted by various researchers but only few of these studies succeed to match with this assertion. This study aims to provide review on the study related to ability of earnings, cash flows from operations and accruals to predict future cash flows where methodology used in this line of research and presentation of empirical results are discussed. The review provides in depth discussion for the purpose of assisting the researchers to get familiarity with line of financial accounting research investigated capital market based accounting research and also as guidance for future researchers.Keywords: Cash flow from operations, Earnings, Accruals, Prediction, Capital Market Based Accounting Research.                                                              

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