test bank for financial statement analysis and security valuation 5th edition penman

7/25/2019 Test Bank for Financial Statement Analysis and Security Valuation 5th Edition Penman

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TEST NUMBER 1

Question 1"#$ !oints%

The follo&in' are partial financial statements for an industrial firm that youare re(uired to analy)e and *alue. All amounts are in millions of dollars.

Income Statement for Fiscal Year 2004


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+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

The firm,s statutory ta rate is #5.#.


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"a.% Supply the missin' numbers A to 0.

A 1 23#4

B 1 3

6 1 43

7 1 2284

1 59#

F 1 533

1 223

; 1 "4%

< 1 59#

0 1 223

"


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To ans&er the remainder of the (uestions prepare the reformulated incomestatement and balance sheet:


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"b% 6alculate the follo&in' for $338. =se be'innin' of year balance sheetnumbers in denominators.

"i% 6omprehensi*e income

6omprehensi*e income 1 223 > 5 ? 8 > 4 1 23#

@< 6< !ref.

7i*.

"ii% 6ore operatin' income after ta

2$.82

"iii% @et financial epense after ta

$2.#5

"i*% eturn on net operatin' assets "@A%

@A 1 2$8.#5/C53 1 28.4#


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"*% 6ore return on net operatin' assets "6ore @A%

6ore @A 1 2$.82/C53 1 25.$$

"*i% @et borro&in' cost "@B6%

@B6 1 $2.#5/#53 1 4.2

"*ii% Free cash flo&

6> < 1 < > @A

1 2$8.#5 > "$#> C53%1 52.#5

"*iii% @et payments to debt holders and debt issuers

F 1 6 > < > d1 52.#5 > #31 $2.#5

Also@F > @F 1 $2.#5 > 3 1 $2.#5


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"c% Sho& that the follo&in' relation holds for this firm:

6 1 @A ? "Financial De*era'e peratin' Spread%

6 1 23#/533 1 $3.4FDV 1 #53/533 1 3.9 "be'innin' of $338%$3.4 1 28.4# ? E3.9 "28.4# - 4.2%G

"d% Sho& that the follo&in' relation holds for this firm. =se # for the short-termborro&in' rate. A is return on operatin' assets.

@A 1 A ? Eperatin' Diability De*era'e "A > Short-term Borro&in' ate%G

A 12$8.#5 "3.3# 43%

23

+ 1 2#.C4

DDV 1 43/C53 1 3.392 "be'innin' of $338%

28.4# 1 2#.C4 ? E3.392 "2#.C4 - #.3%G


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"e% Forecast 6 for $335 for the case &here @A is epected to be the sameas core @A in $338 and the net borro&in' cost is epected to be thesame as in $338.

FDV be'innin' of $335 1 #53/59# 1 3.422

6 1 25.$$ ? E3.422 "25.$$ > 4.2%G 1 $3.9

< 1 $# 3.25$$ 1 283.8C

@F 1 #53 3.342 1 $2.#56< 22.3#

6 1 22.#2/59# 1 $3.9

"f% Value the e(uity under a forecast that"i% eturn on net operatin' assets in the future &ill be the same as core @A in $338.

"ii% Sales are epected to 'ro& at 8 per year."iii% Asset turno*ers &ill be the same as in $338.

The re(uired return for operations is .

$338

EV 1 59#

"3.25$$ 3.3% $#

2.3 2.38

+

1 29$2


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"'% 6alculate the intrinsic le*ered price-to-book ratio and enterprise price-to-bookand sho& that the t&o are related in the follo&in' &ay:

De*ered !/B 1 nterprise !/B ? EFinancial De*era'e "nterprise !/B > 2%G

$338NOAV 1 29$2 ? #53 1 $392

De*ered !/B 1 29$2/59# 1 #.33

nterprise !/B 1 $392/$# 1 $.$8

#.33 1 $.$8 ? E3.422 "$.$8 > 2.3%G

"h% 6alculate the intrinsic trailin' le*ered !/ and the trailin' enterprise !/. Sho&that the t&o are related in the follo&in' &ay:

De*ered !/ 1 nterprise !/ ? Earnin's De*era'e "nterprise !/ > 2/@B6 > 2%G

De*ered !/ 29$2 #323#

+= 1 29.33

nterprise !/$392 52.#5

2$8.#5+

= 1 29.39

DV$2.#523#

= 1 3.$39

29.33 1 29.39 ? E3.$39 "29.39 > 23.342

> 2%G

Question 2"C points%


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At the end of the fiscal year endin' 0une #3 $33# Hicrosoft reportedcommon e(uity of I48. billion on its balance sheet &ith I8.3 billion in*ested infinancial assets "in the form of cash e(ui*alents and short term in*estments% and nofinancin' debt. For fiscal year $338 the firm reported I9.8 billion incomprehensi*e income of &hich I2.2 billion &as after-ta earnin's on thefinancial assets.

This month Hicrosoft is distributin' I#8 billion of financial assets toshareholders in the form of a special di*idend.

a. 6alculate Hicrosoft,s return on common e(uity "6% for $338.

6 1 9.8/48. 1 22.83

b. ;oldin' all else constant &hat &ould Hicrosoft,s 6 be after thepayout of I#8 billionJ

#8.3 1 #3.6 1 4.48/#3. 1 $2.8

Also &ith ne& FDV of > 3.8C56 1 #.4$ "> 3.8C5 "#.4$ > $.$8%%

1 $2.8


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c. Kould you epect the payout to increase or decrease earnin's 'ro&thin the futureJ KhyJ


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test bank for financial statement analysis and security valuation 5th edition penman

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