question archive How would the following events (reported this year) affect your forecasts of a firm’s future net income? An asset write-down A merger or acquisition The sale of a major division The initiation of dividend payments

How would the following events (reported this year) affect your forecasts of a firm’s future net income? An asset write-down A merger or acquisition The sale of a major division The initiation of dividend payments

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  1. How would the following events (reported this year) affect your forecasts of a firm’s future net income?
    1. An asset write-down
    2. A merger or acquisition
    3. The sale of a major division
    4. The initiation of dividend payments

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  1. Management decision to write-down an asset could reveal new information about the stability of the investment or demand for inventories. If so, it would affect the expectations of a company’s future net profit.
  2. The way the acquisition is financed, and the accounting method used to record the transaction will affect the forecast of future net profit.
  3. It will affect the net profit of the Company as it will improve the efficiency and accountability of the Company.

 

  1. The cash dividend initiation can be thought of as management forecast of future earning improvement. The initiation of dividend payments sends a good signal to the capital market participants.

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