Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Bilow who wrote (83193)	8/22/2000 12:17:21 AM
From: Don Lloyd	Read Replies (1) \| Respond to of 132070

Carl - Thanks. [...Examples where the stock holders act in bizarre and unusual ways don't seem to me to be the way to explore a theory. Where you want to test an alternative to the standard GAAP accounting would be in the simple cases, not the complex ones....] One reason I'm having trouble coloring within the accounting lines is that part of what I'm interested in, IMO, isn't subject to accounting. Since my theories relate in part to the independent actions of the stockholders, I don't really have the choice to avoid what may well be seen as their bizarre and unusual actions. If a non-accounting process transforms a given starting state to a given end state, then either the accounting treatment that produces the same states is the correct one, or the accounting process is trying to deal with some additional state variables as well. As you have noted, some or most of my examples do not deal with market value at all, never converting ownership to dollars. OTOH, all of your examples make fundamental use of market value. Since I don't believe in the existence of intrinsic value from a fundamental economic POV, if accounting absolutely requires intrinsic values, it may not be possible to reconcile the two points of view. Regards, Don

To: Bilow who wrote (83193)	8/22/2000 10:05:42 PM
From: Don Lloyd	Read Replies (1) \| Respond to of 132070

Carl - [...Where you want to test an alternative to the standard GAAP accounting would be in the simple cases, not the complex ones. ...] OK MONYTRE2.COM Assume a company whose only asset is a tree whose leaves are $100 bills. It produces 10,000 leaves per year for a total of $1M. The company has a single employee, who is paid $200K per year. The company has 80K shares outstanding and the entire $800K annual net cash flow is paid out in dividends of $10 per share. The tree has a remaining life of 10 years and the interest rate is 0%. At the end of ten years, the company will have no remaining value. In each prior year, the value of the company will be equal to the total dividends remaining to be paid out. With ten years remaining the company value is $8M ($100/sh) and with one year remaining the company value will be $800K ($10/sh). As additional compensation, the single employee is given a one time upfront grant of 20K newly issued shares in the company, bringing the total shares to 100K. The entire unchanged $800K annual net cash flow is now paid out in dividends of $8 per share. ( $640K to the original shareholders and $160K to the new shareholder/employee ). The total company value at any time is the same as previously as the total dividend payouts are the same. ($8M with ten years remaining and $800K with one year remaining). Due to the higher share count, the per share value is now $80/sh with 10 years remaining and will be $8/sh with one year remaining. How is the accounting profit determined, and what are the results, both with and without the additional share compensation? Thanks, Don