本学期资料 财务报表 TEST_BANK_5e

TEST NUMBER 1Question 1 (32 Points)The following are partial financial statements for an industrial firm that you are required to analyze and value. All amounts are in millions of dollars.Income Statement for Fiscal Year 2004 _ The firms statutory tax rate is 35.3%.(a.) Supply the missing numbers, A to J.A =1,036B =90C =60D =1,146E =573F =500G =110H =(6) I =573 J =110(If you are unable to calculate one of these numbers, make a reasonable guess before proceeding to part (b) of the question.) To answer the remainder of the questions, prepare the reformulated income statement and balance sheet:(b)Calculate the following for 2004. Use beginning of year balance sheet numbers in denominators.(i) Comprehensive incomeComprehensive income = 110 5 + 4 6 = 103 NI OCI Pref. Div.(ii) Core operating income, after tax129.41(iii) Net financial expense, after tax21.35(iv) Return on net operating assets (RNOA)RNOA = 124.35/850 = 14.63% (v) Core return on net operating assets (Core RNOA)Core RNOA =129.41/850 = 15.22%(vi) Net borrowing cost (NBC)NBC = 21.35/350 = 6.1%(vii) Free cash flowC I=OI DNOA=124.35 (923 850)=51.35(viii) Net payments to debt holders and debt issuersF =C I d=51.35 30=21.35Also, NFE NFO = 21.35 0 = 21.35(c) Show that the following relation holds for this firm:ROCE = RNOA + (Financial Leverage x Operating Spread)ROCE=103/500 = 20.6%FLEV=350/500 = 0.7(beginning of 2004)20.6%=14.63% + 0.7 (14.63% - 6.1%)(d) Show that the following relation holds for this firm. Use 3% for the short-term borrowing rate. ROOA is return on operating assets.RNOA = ROOA + Operating Liability Leverage x (ROOA Short-term Borrowing Rate)ROOA= 13.86%OLLEV=60/850 = 0.071(beginning of 2004)14.63%= 13.86% + 0.071 (13.86% - 3.0%)(e) Forecast ROCE for 2005 for the case where RNOA is expected to be the same as core RNOA in 2004 and the net borrowing cost is expected to be thesame as in 2004.FLEV, beginning of 2005 = 350/573 = 0.611ROCE = 15.22% + 0.611 (15.22 6.1) = 20.79%OR,OI =923 0.1522=140.48NFE=350 0.061= 21.35CI119.03ROCE = 119.31/573 = 20.79%(f) Value the equity under a forecast that (i) Return on net operating assets in the future will be the same as core RNOA in 2004.(ii) Sales are expected to grow at 4% per year.(iii) Asset turnovers will be the same as in 2004. The required return for operations is 9%.= 573 = 1,721(g) Calculate the intrinsic levered price-to-book ratio and enterprise price-to-book and show that the two are related in the following way:Levered P/B = Enterprise P/B + Financial Leverage (Enterprise P/B 1)=1,721 + 350 = 2,071Levered P/B=1,721/573= 3.00Enterprise P/B=2,071/923= 2.243.00= 2.24 + 0.611 x (2.24 1.0)(h) Calculate the intrinsic trailing levered P/E and the trailing enterprise P/E. Show that the two are related in the following way:Levered P/E = Enterprise P/E + Earnings Leverage (Enterprise P/E 1/NBC 1)Levered P/E=17.00 Enterprise P/E=17.07 ELEV=0.207 17.00=17.07 + 0.207 (17.07 1) Question 2 (8 points)At the end of the fiscal year ending June 30, 2003, Microsoft reported common equity of $64.9 billion on its balance sheet, with $49.0 billion invested in financial assets (in the form of cash equivalents and short term investments) and no financing debt. For fiscal year 2004, the firm reported $7.4 billion in comprehensive income, of which $1.1 billion was after-tax earnings on the financial assets.This month Microsoft is distributing $34 billion of financial assets to shareholders in the form of a special dividend.a. Calculate Microsofts return on common equity (ROCE) for 2004.ROCE = 7.4/64.9 = 11.40% b. Holding all else constant what would Microsofts ROCE be after the payout of $34 billion?Income statement after payoutOI6.30(As before: 7.4 1.1 = 6.3)NFI (15 0.0224)0.34(NFA = 49 34 = 15)Comp. income6.64(Rate of return = 1.1/49 = 0.0224)CSE = 64.9 34.0 = 30.9ROCE = 6.64/30.9 = 21.49%Also, with new FLEV of 0.485,ROCE = 39.62 ( 0.485 (39.62 2.24) = 21.49%c.Would you expect the payout to increase or decrease earnings growth in the future? Why?Increasing leverage always increases expected earnings growth. The payout increases leverage (in this case, it makes the leverage less negative).a. What effect would you expect the payout to have on the value of a Microsoft share?The per-share value of the shares will drop by the amount of the dividend per share.Note: if the payout were via a share repurchase, there would be no effect on per-share valueTEST NUMBER 2Question 1 (10 points)Below is an excerpt from the cash flow statement of a firm for fiscal year 2003:Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Amortization of software Tax benefits of employee stock plans Special charges (Gains)/losses on investmentsChange in operating assets and liabilities: Receivables Inventories Pension assets Other assets Accounts payable Pension liabilities Other liabilities Net cash provided by operating activities Cash flows from investing activities:Payments for plant and otherpropertyProceeds from disposition of plantand other propertyInvestment in softwarePurchases of marketable securitiesand other investmentsProceeds from disposition ofmarketable securities and other investments Net cash used in investing activitiesFiscal Year EndedDecember 31, 2003$1,50025040045020020600250(475)70(50)85_200_3,500(2,000)800(500)(1,500)1,200 _(2,000) _ Additional information:Cash interest receiptsCash interest paymentsFrom the reformulated equity statement:Shareholders equity December 31, 2002Shareholders equity December 31, 2003Net payout to shareholdersThe firms tax rate is 35%. 110 (200)5,5004,7602,500Required:b. Calculate free cash flow for 2003.Cash from operations, reported3,500.0Net interest payments (200-110) 90Tax 35%31.5 58.5Cash from operations3,558.5Cash investments reported2,000Net purchases of financial assets (1500 1200) 3001,700.0FREE CASH FLOW1,858.5c. Calculate net payments to debt holders and issuers for 2003.Free cash flow = C I =d + F 1,858.5 2,500 ? ? = 641.5 (cash in from debt holders and issuers)d. Calculate comprehensive income for 2003.Comprehensive income= DCSE + Net Payout to Shareholders= 740 + 2,500= 1,760Question 2 (30 points).Part AThe following is a condensed version of the statement of shareholders equity for Dell Computer Corporation for fiscal year ending January 31, 2003 (in millions of dollars):Balance at February 1, 2002Net incomeUnrealized gain on debt investmentsUnrealized loss on derivative instrumentsForeign currency translation gainComprehensive incomeShares issued on exercise of options, including tax benefits of $260Repurchase of 50 millions sharesBalance of January 31, 20034,6942,12226(101)_42,051418(2,290)_4,873Other information:1. Dells tax rate is 35%2. The repurchase occurred when the stock traded at $28 per share.Required:Prepare a reformulated statement of shareholders equity for 2003 for Dell Computer Corporation. The reformulated statement should identify comprehensive income.(Page for answer)Preliminaries:1 Loss on stock option exercise = =743 Tax deductions260483 2.Market value of shares repurchased $28 50=1,400Amount paid or repurchases2,290Loss on repurchase 890(The repurchase was on exercise of a stock repurchase agreement)Reformulated Equity Statement:Balance, February 1, 20024,694Net payout to shareholders:share issue (at market value) 418 + 483 =(901)share repurchase (at market value)1,400 499Comprehensive income:CI reported2,051Loss on stock options fro employees(483)Loss on share repurchase(890) 678Balance, January 31, 20034,873Part B See Box 11.5 on page 356 of text.The following is extracted from Dells balance sheet at January 31, 2003 (in millions of dollars):Net financial assetsCommon equity (2,579 million shares outstanding)9,1674,873Analysts are forecasting consensus earnings per share of $1.01 for the year ending January 31, 2004.a. Calculate net operating assets at January 31, 2003.NOA = CSE NFA=4,873 9,167= 4,294(negative NOA!)b. Net financial assets are expected to earn an after-tax return of 4% in 2004. What is the forecast of operating income implicit in the analysts eps forecast?Earnings forecast = $1.01 2,579 = 2,605Forecast of net financial income = 9,167 0.04 = 367Forecast of operating income 2,238c. Forecast the residual operating income for 2004 that is implicit in the analysts forecast. Use a required annual return for operations of 9%.ReOI2004= OI2004 (0.09 NOA2003)= 2,238 0.09 ( 4,294)= 2,624d. Dells shares are currently trading at $34 each. With the above information, value the shares under the following set of scenarios using residual income methods:(ii) Sales will grow at 5% per year after 2004.(iii) Operating assets and operating liabilities with both grow at 5% per year after 2003.(iv) Operating profit margins (after tax) will be the same as these forecasted for 2004. If sales are to grow at 5% and profit margins are constant, OI will grow at 5%. If NOA are to grow at 5%, then ReOI will also grow at 5%.e. Under the same scenarios, forecast free cash flow for 2004.f. Under the same scenarios, forecast abnormal growth in operating income for 2005.AOIG2005=ReOI2003 0.05(growth in ReOI in 2005)=2,624 0.05=131.2g. Show that, with a long term growth rate of 5%, the following formula will give the same value as that in part (d) of the question:where G2 is the (one plus) cum-dividend growth rate in operating income two years ahead and g is (one plus) the long-term growth rate.Cum-div OI in 2005= (2,238 1.09) + AOIG2005= (2,238 1.09) + 131.2= 2,570.6G2 (in 2005)= TEST NUMBER 3This exam comes in two parts. Part I involves an analysis of a set of financial statements and Part II involves forecasting and valuation based on those financial statements.Part I: Analysis (20 Points)The following is a comparative balance sheet for a firm for fiscal year 2002 (in millions of dollars):2002200120022001Operating cash6050Accounts payable1,2001,040Short-term investments (at market)550500Accrued liabilities390450Accounts receivable940790Long-term debt1,8401,970Inventory910840Property and plant 2,840 2,710Common equity 1,870 1,430 5,300 4,890 5,300 4,890The following is the statement of common shareholders equity for 2002 (in millions of dollars):Balance, end of fiscal year 20011,430Share issues from exercised employee stock options810Repurchase of 24 million shares(720)Cash dividend(180)Tax benefit from exercise of employee stock options12Unrealized gain on investments50Net income468Balance, end of fiscal year 20021,870The firms income tax rate is 35%. The firm reported $15 million in interest income and $98 million in interest expense for 2002. Sales revenue was $3,726 million.a.Calculate the loss to shareholders from the exercise of employee stock options during 2002.Compensation expense = =34 Tax Benefit 12Compensation, after tax 22b.The shares repurchased were in settlement of a forward purchase agreement. The market price of the shares at the time of the repurchase was $25 each. What was the effect of this transaction on the income for the shareholders?Market price of shares repurchased25Amount paid for shares 720/24 million30Loss per share 5No. of shares24 million $120 millionThese losses are not tax deductiblec.Prepare a comprehensive income statement that distinguishes after-tax operating income from financing income and expense. Include gains or losses from the transactions in questions (a) and (b) above. Comprehensive income = 468 + 50 22 120 = 376All other items are unknown, except operating expense that can be pluggedd.Prepare a reformulated comparative balance sheet that distinguishes assets and liabilities employed in operations from those employed in financing activities. Calculate the firms financial leverage and operating liability leverage at the end of 2002.2002 2001NOA3,1602,900NFO1,2901,470CSE1,8701,430FLEV = NFO / CSE = 1,290/1,870 = 0.690OLLEV = OL / NOA = 1,590/3,160 = 0.503OL = 1,200 + 390 = 1,590e.Calculate free cash flow for 2002.FCF = OI DNOA = 500 (3,160 2,900) = 240Part II: Forecasting and Valuation (20 Points)Use a cost of capital for operations of 9%. Sales revenue is forecasted to grow at a 6% rate per year in the future, on a constant asset turnover of 1.25. Operating profit margins of 14% are expected to be earned each year.a.Forecast return on net operating assets (RNOA) for 2003.RNOA = PM ATO= 14% 1.25= 17.5%b.Forecast residual operating income for 2003.ReOI2003 = (0.175 0.09) NOA2002 = (0.175 0.09) 3,160 = 268.6c.Value the shareholders equity at the end of the 2002 fiscal year using residual income methods.VE = NOA2002 + - NFO = 3,160 + 1,290 = 10,823Growth in ReOI is growth in sales because ATO is constantd.Forecast abnormal growth in operating income for 2004.Two methods:1. OI2004 586.182. AOIG = Growth in ReOI FCF2003 reinvested 32.71 AOIG2004 = 268.6 0.06618.89= 16.12Normal OI(553 1.09)602.77AOIG 16.12OI and NOA all grow at 6%e.Value the shareholders equity at the end of 2002 using abnormal earnings growth methods.f. After reading the stock compensation footnote for this firm, you note that there are employee stock options on 28 million shares outstanding at the end of 2002. A modified Black-Scholes valuation of these options is $15 each. How does this information change your valuation? before option overhang10,825Option overhang: Value of outstanding options28 mill. 15 = 420 Tax benefit (35%) 147 273Adjusted valuation10,552TEST NUMBER 4Question 1 (12 points)At the time that of its 10-Q filing of financial statements for the first half of its January 2002 fiscal year, Home Depots shares traded at $50 per share. The following are summaries from those financial statements.Balance Sheet, July 29, 2001(in millions of dollars)Financial liabilities1,320Operating assets23, 457Operating liabilities6,709Financial assets1,221Common equity(on 2,336 million outstanding shares) 16,649 24,678 24,678Statement of Earnings, Six Months Ended, July 29, 2001(in millions of dollars)Net sales26,776Cost of Merchandise Sold 18,795Gross Profit 7,981Operating Expenses:Selling and Store Operating4,963Pr