1.Why the so-called “fair value” of financial assets is represented by the present value of future cash flows of financial asset?

1. Why the so-called “fair value” of a financial asset is represented by the present value of future cash flows of a financial asset?

2.Provide the common size statements for both Balance Sheet and Income Statement. What kind of noticeable pattern you may identify for the firm? Is this usual for the airline industry?

Balance Sheet (in millions)

2012               2013                2014

Assets

Cash                                                                  30                  10                         475

Marketable securities                                        150                100                    0

Accounts Receivable                                         920            1150                  800

Inventory                                                          760                278                450

Plant, Building, and Equipment’s (net)          1872                1905                1109

Investments in affiliates                                     0                          30                          329

Total Assets                                                  3732                3473                3163

Liabilities

Short-term debts                                             607                      9                          30

Advances from customers                            111                    34                            34

Accounts payable                                           685                  192                773

Interest payable                                            75                  98                            62

Tax payable                                                    127                  147                128

Other Accrued Expenses                              20                  15                            35

Bonds payable                                                925                  486                650

Stockholders’ Equity

Common stock                                               1021                2258                1175

Additional paid-in capital                              74                          156                147

Retained earning                                                 87                           78                          129

Total liabilities and equities                           3732                3473                3163

Income Statement(in millions)

2012               2013                2014

Net Sales                                                         3296                3418                3983

Cost of Goods Sold                                        2215                1809                2410

Selling and General Expenses                            700                812                759

Depreciation Expense                                       260                298                284

Interest Expense                                                 90                          109                121

Income Tax Expense                                           295                        137                254

Net Income                                                       (264)                        253                155

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