习题答案Principles of Corporate Finance第十版 Chapter28

1、CHAPTER 28Financial AnalysisAnswers to Problem Sets1.$ thousands$ thousandsCash25Accounts payable24Accounts receivable35 Total current liabilities24Inventories30Long-term debt130 Total current assets90Equity75Net plant & equipment140Total assets230Total liabilities & equity2302 a. ROA = (1 -

2、 .35) x 67 + 474)/4,126 = .125, or 12.5%b. Operating profit margin = (1 - .35) x 67 + 474)/ 7,911 = .065, or 6.5%e. Debt-to-equity ratio = 1,078/ 1,653 = .65g. Quick ratio = (402 + 1,034)/ 1,699 = .853.COMMON-SIZE BALANCE SHEET, 2008%Cash & marketable securitiesDebt due for repaymentAccounts rec

3、eivableAccounts payableInventories Total current liabilitiesOther current assetsLong-term debt Total current assetsOther long-term liabilitiesTangible fixed assets Total liabilitiesLess accumulated depreciationTotal shareholders equity Net tangible fixed assetsLong-term investments .5Other long-term

4、 assetsTotal assets100Total liabilities & shareholders equity100COMMON-SIZE INCOME STATEMENT, 2008Sales100%Cost of goods soldSelling, general and administrative expensesDepreciationEarnings before interest & taxesInterest expense.9Taxable incomeTaxNet income 4. a. Market-value-added = 195 x

5、$45.50 - $1,653 = $7,220 millionb. c. EVA = (1-.35) x 67 +474 .10 x (1,078 + 1,653) = $177.7 milliond. ROC = (1-.35) x 67 +474 / (1,078 + 1,653) = .190, or 19.0%5.The illogical ratios are a, b, c, f, and i. The correct definitions are:  6.a. Falseb. Truec. Falsed. Falsee. Falseit will tend to i

6、ncrease the priceearnings multiple.7.a. Sales = 3 X 500,000 = 1,500,000; after-tax interest + net income = .08 X 1,500,000 = 120,000; ROA = 120,000/500,000 = 24%b. Net income = .08 X 3 X 500,000 (1- .35) X 30,000 = 100,500; ROE = net income/ equity = 100,500/300,000 = .33.; 3.65%10.a. b. Ne

7、t working capital = 40. Total capitalization = 540. Debt to total capitalization = .52.11. Assume that new debt is current liability. a. Current ratio goes from 100/60 = 1.67 to 120/80 = 1.50; cash ratio goes from 30/60 = .5 to 50/80 = .63b. Long-term debt ratio is unchanged; total liabilities/total

8、 assets goes from 410/600 = .6833 to 430/620 = .693512. $10 million.13.$82 million.14.a.The following are examples of items that may not be shown on the companys books: intangible assets, off-balance sheet debt, pension assets and liabilities (if the pension plan has a surplus), derivatives position

9、s.b. The value of intangible assets generally does not show up on the companys balance sheet. This affects accounting rates of return because book assets are too low. It can also make debt ratios seem high, again because assets are undervalued. Research and development expenditures are generally rec

10、orded as expenses rather than assets, thereby understating income and understating assets. Patents and trademarks, which can be extremely valuable assets, are not recorded as assets unless they are acquired from another company.15.As discussed in Section 28-3, there are many different ways to measur

11、e a firms overall performance. Some of the financial metrics include:Market value added the difference between the amount of money shareholders have invested in the firm and current market capitalization of equity. Market-to-book ratio the market value of equity divided by book value of equity. This

12、 ratio gives us a common-size basis for comparing smaller and larger firms.Economic value added the profit for the firm after the cost of capital is deducted. Return on capital the total profits available for all investors (equity and debt-holders) divided by the amount of money invested in the firm

13、.Return on equity the net income divided by equityReturn on assets (after tax interest plus net income) divided by total assetsEach of these measures has its advantages, depending on the goal of the analysis. EVA and the rates of return show current performance and are not impacted by expectations o

14、f future events that are measured in current market prices. The potential downside of these metrics is that they are grounded in book value and balance sheet figures that may not reflect economic reality accurately.In all cases we may wish to compare recent performance with historical firm performan

15、ce and with contemporary performance of comparable firms in order to judge whether performance was satisfactory.16.The answer, as in all questions pertaining to financial ratios, is, “It depends on what you want to use the measure for.” For most purposes, a financial manager is concerned with the ma

16、rket value of the assets supporting the debt, but, since intangible assets may be worthless in the event of financial distress, the use of book values may be an acceptable proxy. You may need to look at the market value of debt, e.g., when calculating the weighted average cost of capital. However, i

17、f you are concerned with, say, probability of default, you are interested in what a firm has promised to pay, not necessarily in what investors think that promise is worth.Looking at the face value of debt may be misleading when comparing firms with debt having different maturities. After all, a cer

18、tain payment of $1,000 ten years from now is worth less than a certain payment of $1,000 next year. Therefore, if the information is available, it may be helpful to discount face value at the risk-free rate, i.e., calculate the present value of the exercise price on the option to default. (Merton re

19、fers to this measure as the quasi-debt ratio.)You should not exclude items just because they are off-balance-sheet, but you need to recognize that there may be other offsetting off-balance-sheet items, e.g., the pension fund.How you treat preferred stock depends upon what you are trying to measure.

20、Preferred stock is largely a fixed charge that accentuates the risk of the common stock. On the other hand, as far as lenders are concerned, preferred stock is a junior claim on firm assets.17.Times-interest earned equals EBIT / interest payments. With the interest rate decrease, interest payments w

21、ill drop on the floating debt. The smaller denominator thus causes an increase in the times-interest earned ratio.The market value of the fixed-rate debt will increase with the decline in interest rates. This will cause the ratio of market value of debt to equity to increase, giving the appearance o

22、f greater leverage. Of course the firms capital structure has not changed, suggesting an advantage of using book values for debt ratios.18.The effect on the current ratio of the following transactions:a. Inventory is sold Þ no effectb. The firm takes out a bank loan to pay its suppliers Þ

23、no effectc. The firm arranges a line of credit Þ no effectd. A customer pays its overdue bills Þ no effecte. The firm uses cash to purchase additional inventories Þ no effect19.After the merger, sales will be $100, assets will be $70, and profit will be $14. The financial ratios for t

24、he firms are:Federal StoresSara TogasMerged FirmSales-to-AssetsProfit MarginROANote that the calculation of profit is straightforward in one sense, but in another it is somewhat complicated. Before the merger, Federals cost of goods includes the $20 it purchases from Sara, and Saras cost of goods so

25、ld is: ($20 $4) = $16After the merger, therefore, the cost of goods sold will be: ($90 $20 + $16) = $86With sales of $100, profit will be $14.20.Balance SheetTotal liabilities + Equity = 235 Þ Total assets = 235Total current liabilities = 30 + 25 = 55Current ratio = 1.4 Þ Total current ass

26、ets = 1.4 ´ 55 = 77Cash ratio = 0.2 Þ Cash = 0.2 ´ 55 = 11Quick ratio = 1.0 Þ Cash + Accounts receivable = current liabilities = 55 ÞAccounts receivable = 44Total current assets = 77 = Cash + Accounts receivable + Inventory ÞInventory = 22Total assets = Total current as

27、sets + Fixed assets = 235 Þ Fixed assets = 158Long-term debt + Equity = 235 55 = 180Debt ratio = 0.4 = Long-term debt/(Long-term debt + Equity) ÞLong-term debt = 72Equity = 180 72 = 108Income StatementAverage inventory = (22 + 26)/2 = 24Inventory turnover = 5.0 = (Cost of goods sold/Averag

28、e inventory) ÞCost of goods sold = 120Average receivables = (34 + 44)/2 = 39Receivables collection period = 71.2 = Average receivables/(Sales/365) ÞSales = 200EBIT = 200 120 10 20 = 50Times-interest-earned = 6.25 = (EBIT + Depreciation)/Interest ÞAverage equity = (108 + 100)/2 = 104Re

29、turn on equity = 0.24 = Earnings available for common stock/average equity ÞTax = Earnings before tax - Earnings available for common stock = 38.8-24.96 ÞThe result is:Fixed assets$158SalesCash11Cost of goods soldAccounts receivable44Selling, general, andInventory22AdministrativeTotal curr

30、ent assets77DepreciationTOTAL$235EBITEquity$108InterestLong-term debt72Earnings before taxNotes payable30TaxAccounts payable25Available for commonTotal current liabilities55TOTAL$23521.Two obvious choices are:a.Total industry EBIT over total industry interest payments:CompanyABCDETotalEBIT1030100802

31、17Interest Pmt515502173b.Average of the individual companies ratios:CompanyABCDEEBIT103010080Interest Pmt5155021Times-interest22280Clearly, the method of calculation has a substantial impact on the result. The first method is generally preferable. Here, the second method gives too much weight to Com

32、pany E, which is a large firm with little debt.22.Rapid inflation distorts virtually every item on a firms balance sheet and income statement. For example, inflation affects the value of inventory (and, hence, cost of goods sold), the value of plant and equipment, the value of debt (both long-term a

33、nd short-term); and so on. Given these distortions, the relevance of the numbers recorded is greatly diminished.The presence of debt introduces more distortions. As mentioned above, the value of debt is affected, but so is the rate demanded by bondholders, who include the effects of inflation in the

34、ir lending decisions.23.All of the financial ratios are likely to be helpful, although to varying degrees. Presumably, those ratios that relate directly to the variability of earnings and the behavior of the stock price have the strongest associations with market risk; likely candidates include the

35、debt-equity ratio and the P/E ratio. Other accounting measures of risk might be devised by taking five-year averages of these ratios.24.Answers will vary depending on companies and industries chosen.25.When calculating EVA we should deduct the income tax shield in order to measure the true cost to t

36、he firm of raising capital via debt. An alternative approach might be to adjust the cost of capital to account for the tax savings from debt. Simply deducting the cost of equity from net income will not lead to the correct answer if the after-tax cost of debt differs significantly from the cost of e

37、quityand if the firm has issued a meaningful amount of debt.26.Recall that return on capital (ROC) equals the total profits earned for debt and equity investors divided by the amount of money contributed. It is calculated as (after-tax interest + net income) / total capital. Using an average of capi

38、tal at the start and end of the year for the denominator will produce a reasonable result if the firm actively increases or reduces capital over the year in a manner consistent with past practices.By contrast, if increases in capital over the year occur without additional debt or stock issuances (such as solely through retained earnings), the amount of money that