How do the growth perpetuity results differ with negative and positive growths of similar magnitude assuming everything else remains unchanged?
What will be an ideal response?
Answer: The denominator in the formula for growth perpetuity plays in important role on the results for negative and positive growths of similar magnitude. A positive growth results in a smaller denominator thereby increasing the present value (PV). Contrarily, a negative growth results in a larger denominator giving a smaller present value (PV).
You might also like to view...
The auditor has determined that the control risk for the existence assertion is low; therefore the auditor may reduce the number of items tested on a substantive basis
a. True b. False Indicate whether the statement is true or false
Which of the following is least likely to require significant auditor judgment about the dollar amount to be disclosed in the financial statement?
a. Contingent liability related to pending litigation. b. Assumptions made in preparation of the estimate of income tax expense for the year. c. The value of inventory. d. Cash on hand at the end of the year.
The stock market crash in 1929 led to the beginning of the extensive regulation of trading stock on stock exchanges.
Answer the following statement true (T) or false (F)
The principle of stare decisis forbids a court from changing a doctrine already established judicially
Indicate whether the statement is true or false