Lecture 7

Q3. Define the two financial terms used in lecture.

Ans:
1.Equity cost earnings.
2.Back loaded earning problems
1.Equity cost problems:
Basically, these are two problems, this one refer to the projects that looks bad at start but in the
end they become so profitable in future because the reason is earning patterns vary from business
to business.
2.Back loaded earnings problems
This is also another sort of problem, in which the projects looks good in start but it have bad near
term earning prospects that’s is case when the climate and environment changes occurs in
business world mainly affected by change buyer behavior.
Q4.What are its implications in corporate finance decision making?
It tells the investor that while investing the investors are much concerned about earning patterns
and the economic perspective is not the only measure to check the value created use of economic
indicator is good but have some limitations also.