Question

Describe a back-loaded earnings problem and discuss which managers are likely to have the problem.

Answer 1

Answer:

A back-loaded earnings problem, as the name proposes is settling on a decision to pick a investment whose profit are concentrated towards the end of life of the projects.

• Such undertakings will attract more expenditure beginning years and yield little income with a promise to improve immensely in future.
• This might be a case with projects having a long skyline.
• Such undertakings may show a positive NPV however no doubt will have Negative financial profits.

Administrators whose remunerations are not straightforwardly connected to current earnings/profits will in general lean toward a back loaded earnings project instead of a front stacked with a conviction that their present earnings are low since they are making incredible investments  which would take care of tremendous returns in future.