Final answer:
The accountant is assessing the company’s financial performance by analyzing profits after costs and the efficiency of capital utilization. They look at the net earnings after subtracting operating expenses and the cost associated with raising capital, which includes equity and debt. Additionally, the financing options chosen affect the company's cash flow obligations and overall financial strategy.
Step-by-step explanation:
An accountant reviewing the company’s profits and cost of capital for the current year is essentially assessing the company’s financial performance and its efficiency in generating returns on investments relative to the cost of obtaining the capital. The profits refer to the earnings after accounting for all expenses, which can be calculated as total revenue minus total costs (including labor, capital, and materials). For example, if a firm had sales revenue of $1 million last year and spent $600,000 on labor, $150,000 on capital, and $200,000 on materials, the firm's accounting profit would be $50,000. The cost of capital is the return expected by those who provide capital to the firm, such as creditors and shareholders, and influences investment decisions and financial strategies.
Furthermore, how a company finances its operations, whether through issuing bonds or stock, impacts its obligations to make payments, such as interest payments for bonds. Venture capitalists as a financing option tend to have better information and involvement in the management of a company, thus potentially reducing the problems of imperfect information. The cost of capital may also be influenced by expected returns adjusted for risk, as financial investors would consider the appropriate interest rate for future payments based on the opportunity cost and risk premium of the investment.