Account

Management Programme

ASSIGNMENT

SECOND SEMESTER

2012

MS – 04: ACCOUNTING AND FINANCE FOR MANAGERS

School of Management Studies

INDIRA GANDHI NATIONAL OPEN UNIVERSITY

MAIDAN GARHI, NEW DELHI – 110 068

Program Title: | MBA | Enrollment No: | ID1259979 |

Assignment Code | MS-04 / TMA / SEM - II /2012 | Name | Prabeen Kr. Jha |

MS-55: LOGISTICS AND SUPPLY CHAIN MANAGEMENT

School of Management Studies

INDIRA GANDHI NATIONAL OPEN UNIVERSITY

MAIDAN GARHI, NEW DELHI – 110 068

MS-04

Program Title: | MBA | Enrollment No: | ID1259979 |

Course Code: | MS – 04 | Name | Prabeen Kr. Jha |

Course Title: | Accounting & Finance for Managers | Address | Janakpur |

Assignment Code | MS-04/TMA/SEM - II /2012 | Signature | |

PI Code | 9602 | Date | |

Note: Answer all the questions and send them to the Coordinator of the Study Centre you are attached with.

1. a) What do you understand by capitalization of earning? How is the value of a firm ascertained with the help of its earnings? Explain with an example.

ANSWER:

CAPITALIZATION OF EARNING

Capitalization of earning is actually an income-valuation technique which establishes the worth of a business / company / enterprise by exploring the present benefit of realizing a cash-flow now, as opposed to in the future. The capitalization of earnings is extremely helpful when the potential earnings could be forecasted effortlessly.

A method of determining the value of an organization by calculating the net present value (NPV) of expected future profits or cash flows. The capitalization of earnings estimate is done by taking the entity's future earnings and dividing them by the capitalization rate (cap rate). This will take into account the risk that earnings will stop or be lower than the estimate.

Where:

d = discount rate

g = growth rate

This is an income-valuation approach that determines the value of a business by looking at the current benefit of realizing a cash flow now, rather than in...