First and foremost is a cliché in the message
Answer:
AC Problems : Incurred even at 0 output level, much varying & deviant from cash flows
VC Problems : Doesn't include fixed cost, incomplete expenditure, incomplete financial (accounting) statements.
Explanation:
Average Cost is the cost per unit off output.
Problems with AC as a performance measure :
- It includes all (fixed & variable cost) average. So, including fixed cost, it is not zero even at zero output level.
- It's variance analysis during production & cost phases is very complicated.
- It's result are deviant as evident from cash flows.
Variable Cost is the cost incurred on variable factors of production.
Problems with VC as a performance measure :
- It doesn't include fixed cost. So, it is not a correct measure of complete total expenditure.
- Fixed costs are huge. No financial inclusion of them makes accounting information unreliable (for legal purposes)
Answer:
Firm's cash coverage ratio = 9.64
Explanation:
We know,
Cash coverage ratio = Cash and Cash equivalents ÷ current liabilities
However, as there is no such information regarding cash and cash equivalents and liabilities, we have to use alternative formula,
Firm's cash coverage ratio = (EBIT + Depreciation Expense) ÷ Fixed charges
Given,
EBIT = $400,000
Depreciation Expense = $24,000
Fixed charges = $44,000
Therefore,
Firm's cash coverage ratio = ($400,000 + 24,000) ÷ $44,000
Firm's cash coverage ratio = $424,000 ÷ $44,000
Firm's cash coverage ratio = 9.64
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Johnstone should value the equipment at $125,096.
<h3>
What are installments?</h3>
- Simply put, an installment payment is a quantity of money that is paid over a specific period of time in smaller installments.
- A recurring payment called an installment payment plan enables clients to make larger purchases without having to pay the full amount up front.
<h3>What is the interest rate?</h3>
- The amount of interest due each period expressed as a percentage of the amount lent, deposited, or borrowed is known as an interest rate.
- The total interest on a loaned or borrowed sum is determined by the principal amount, the interest rate, the frequency of compounding, and the period of time the loan, deposit, or borrowing took place.
<h3>Solution -</h3>
PV = $28,000 + $5,000 (3.79079) = $125,096
Equipment Present value of an ordinary = $125,096
Therefore, Johnstone should value the equipment at $125,096.
Know more about compounding here:
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