Chap 5

• What are the official accounting values of assets called?

  Book values
• How is book value per share calculated?

  Shareholders' equity divided by shares outstanding
• What was the market price of GPC common stock?

  $187.50
• Why might market price not equal book value?

  Book value omits some assets and liabilities
• What does the book value not include?

  All of a firm's assets and liabilities
• How are assets and liabilities valued on the balance sheet?

  At original cost, less depreciation
• What are intangible assets?

  Economically significant assets not on balance sheet
• What is goodwill in accounting?

  Difference between market price and book value
• What factors does goodwill reflect?

  Brand reputation, customer relationships, talent
• What kind of liabilities might be omitted from the balance sheet?

  Contingent liabilities
• What is the relevant value for replacing an asset?

  Asset's opportunity cost
• How is market value approximated?

  By the market
• What is the difference between market and book values of cash?

  No difference
• What is marking to market?

  Revaluing assets and liabilities
• What is the economic definition of income?

  Amount spent while maintaining wealth
• How does the accounting definition of income differ from the economic definition?

  It ignores unrealized gains or losses
• If net wages were $100,000 and assets declined by $60,000, what is the economist's income?

  $40,000
• How is total rate of return on an investment in stock calculated?

  Change in market price plus dividends

  
• What was the market price of GPC stock at the beginning of the year?

  $200 per share
• What was the cash dividend per share for GPC stock?

  $10
• What is return on equity (ROE)?

  Net income divided by book value of equity

  
• How does ROE relate to total rate of return for shareholders?

  No correspondence between ROE and total return