Financial Accounting Case Study Solution

This means as employees’ nominal wages increase with inflation their real wage (purchasing power of nominal wages) may remain constant. Since inflation reduces the incentive for households to save, it causes a shortage of savings for firms to borrow. Firms finance investment (the purchase of new capital goods) by borrowing money. Therefore, if there is not saving funds for investment will

As a result of the time value of the money, NPV considers the compounding of the discount rate over the span of the project. The NPV of a project mirrors how much cash inflow or outflow and it measures up to or surpasses the amount of project capital required to reserve it. An organization utilize NPV as a method for contrasting their relative profitability with assurance that exclusive the most lucrative endeavors are sought while evaluating numerous projects. A higher NPV shows that the project is more fruitful. The forecasted cash outflow and inflow for every period must be recognized and additionally the expected discount rate in order to compute NPV.

Socialism’s primary focus is on equity, Socialism is concerned with redistributing resources from the rich to the poor. This is to ensure everyone has both equal opportunities and equal outcomes. Capitalism is unconcerned about equity. It is argued that inequality is essential to encourage innovation and economic development. A comparative study of Europe in the mid-1970s, when that region was split between mostly capitalist and mostly socialist countries, compared the earnings of the richest 5 percent of the population and the poorest 5 percent (Wiles, 1977).

In order to, analyze the company’s performance, we will closely focus on financial performance which is the degree to which financial objectives have been accomplished. This process measures the result of the overall financial health of the company over a period. The most efficient and effective metrics we choose were the improving operating income and return on equity and increasing sales, earning per share. Firstly, our sales have gradually increased in every single period, despite the minor changes in initiatives. Every single period, we removed initiatives that were not aligned with our goals and objectives, and replaced them with initiatives that were.

Web. Retrieved from http://economics.about.com/od/economics-basics/ss/The-Circular-Flow-Model.htm When the demands of the consumer for the goods/services increases, the market price will increase as consumers will compete to purchase them. This will persuade businesses that seek profit to increase the production of the goods/services. If the supply of these goods /services begins to exceed the demand, the market price falls and the production of these goods/services reduced. This will affect the profits of the manufacturers, but production will still continue even for smaller profits.

Short-run trade-off plays a key role in the analysis of business cycle where fluctuations in economy activity are measured by the production of goods and services or the number of people employed. However, the Phillips Curve illustrates the trade-off between inflation and unemployment. Alan (1997) has defined that the reliability of the modern Philips curve as the “clean little secret” of the macroeconomics. Stock and Watson (1999) conducted that “inflation forecasts produced by the Phillips curve are more accurate than forecasts based on other macroeconomic variables, such as interest rates, money, and commodity prices. These forecasts can be improved by using the Phillips curved based on the measures of real aggregate activity of unemployment.” All in all, the ten standards of financial matters assume a basic part in how a nation, a firm or a family deals with its rare assets proficiently while keeping up the value pie that fulfills every part 's monetary pie.

• Can the reduction in the transaction cost result in the depletion in the total share of the social surplus of the consumers? Review of the Paper: Transaction Cost has two remarkable features: 1) The transaction cost can be large enough to “matter” and thus, influence the choices that consumer make pertaining to their behavior, 2) The transaction cost is noted to reduce in magnitude by the advancement of the technological aspects of the consumer

A binding minimum wage, a minimum wage set above the market wage, leads to a reduction in employers’ profits. If there is monopolistic competition in the market, meaning there are no exit barriers, then some employers will be forced to exit out of the market. Employer exit has a negative effect on overall employment through the loss of employment opportunities. Therefore, minimum wages have two conflicting effects, the employment-increasing “oligopsony” effect and the employment-reducing “exit” effect. The overall effect of a minimum wage depends on which of the effects dominates.

The rational expectations theory is often used to explain expected rates of inflation. For example, if inflation rates within an economy were higher than expected in the past, people take that into account along with other indicators to assume that inflation may further increase in the future. The rational expectations theory also explains how producers and suppliers use past events to predict future business operations. If a company believes that the price for its product will be higher in the future, for example, it will stop or slow production until the price rises. Since the company weakens supply while demand stays the same, the price will increase.

CHAPTER 2 LITERATURE REVIEW INFLATION (InvestorWords, 2015) stated that inflation is the increase in the general price level of goods and services in economy, normally caused by excess supply of money. Inflation usually measured by the Consumer Price Index (CPI). When the cost of producing goods and services goes up, the purchasing power of dollar will decrease. A customer will not be able to purchase the same goods and services as he/she previously could. Inflation rate of 1-2% per year are acceptable and even desirable in some ways (Investopedia, 2015).