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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 Financial Statement Analysis and Security Valuation 5th Edition Penman Test Bank. Financial Statement Analysis And Security Valuation 5th Edition Solution Manual Today's stock market news and analysis from nasdaqcom, get the latest news and analysis in the stock market today, including national and world stock market news, business news, financial news and more. Comprehensive nclex questions most like.

  1. A sustainable business and mission requires effective planning and financial management. Ratio analysis is a useful management tool that will improve your understanding of financial results and trends over time, and provide key indicators of organizational performance. Managers will use ratio analysis to pinpoint strengths.
  2. The financial statement in which accountants summarize and report asset value is the balance sheet. To examine how asset value is measured, let us begin with the way assets are categorized in the balance sheet. First, there are the fixed assets, which include the long-term assets of the firm, such as plant, equipment, land and buildings.

Financial Statement Analysis and Security Valuation
Financial Statement Analysis and Security Valuation Penman
Financial Statement Analysis and Security Valuation Penman 5th
Financial Statement Analysis and Security Valuation Penman 5th Test Bank
Financial Statement Analysis and Security Valuation Penman 5th Edition Test Bank

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Name: Financial Statement Analysis and Security Valuation
Author: Penman
Edition: 5th
ISBN-10: 0078025311
Type: Test Bank

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Financial Statement Analysis and Security Valuation
Financial Statement Analysis and Security Valuation Penman
Financial Statement Analysis and Security Valuation Penman 5th
Financial Statement Analysis and Security Valuation Penman 5th Test Bank
Financial Statement Analysis and Security Valuation Penman 5th Edition Test Bank

Full file at http://testbankcafe.eu/Test-Bank-for-Financial-Statement-Analysis-and-Security-Valuation-5th-Edition-Penman
TEST NUMBER 1
Question 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
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_________________________________________________________________
The firm’s statutory tax rate is 35.3%.
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(a.) Supply the missing numbers, A to J. A=
1,036
B=
90
C=
60
D=
1,146
E=
573
F=
500
G=
110
H=
(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.)
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To answer the remainder of the questions, prepare the reformulated income statement and balance sheet:
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(b) Calculate the following for 2004. Use beginning of year balance sheet numbers in denominators. (i)
Comprehensive income
Comprehensive income = 110 – 5 + 4 – 6 = 103 NI
(ii)
OCI
Pref. Div.
Core operating income, after tax 129.41
(iii)
Net financial expense, after tax 21.35
(iv)
Return on net operating assets (RNOA) RNOA = 124.35/850 = 14.63%
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(v)
Core return on net operating assets (Core RNOA) Core RNOA =
(vi)
129.41/850 = 15.22%
Net borrowing cost (NBC)
NBC = 21.35/350 = 6.1%
(vii) Free cash flow C–I = = =
OI – NOA 124.35 – (923 – 850) 51.35
(viii) Net payments to debt holders and debt issuers
F
= = =
C–I–d 51.35 – 30 21.35
Also, NFE – NFO = 21.35 – 0 = 21.35
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(c) Show that the following relation holds for this firm: ROCE = RNOA + (Financial Leverage x Operating Spread) ROCE FLEV 20.6%
= = =
103/500 = 20.6% 350/500 = 0.7 (beginning of 2004) 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
=
124.35  (0.03  60) 910
OLLEV
=
60/850 = 0.071
14.63%
=
13.86% + [0.071 × (13.86% - 3.0%)]
= 13.86%
(beginning of 2004)
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(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 the same as in 2004.
FLEV, beginning of 2005 = 350/573 = 0.611 ROCE = 15.22% + [0.611 × (15.22 – 6.1)] = 20.79% OR, OI = NFE = CI
923 × 0.1522 350 × 0.061
= =
140.48 21.35 119.03
ROCE = 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%.
E V2004
= 573

= 1,721
(0.1522  0.09)  923 1.09 1.04
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(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)] NOA V2004
=
1,721 + 350
= 2,071
Levered P/B
=
1,721/573 = 3.00
Enterprise P/B
=
2,071/923 = 2.24
3.00
= 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
 1,721 30 103
=
17.00
Enterprise P/E
 2,071 51.35 124.35
=
17.07
ELEV
 21.35 103
=
0.207
17.00
=
Question 2 (8 points)
17.07 + [0.207 × (17.07 –
1 – 1)] 0.061
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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 Microsoft’s return on common equity (ROCE) for 2004.
ROCE = 7.4/64.9 = 11.40%
b. Holding all else constant what would Microsoft’s ROCE be after the payout of $34 billion?
Income statement after payout OI 6.30 NFI (15 × 0.0224) 0.34 Comp. income 6.64 CSE = 64.9 – 34.0 = 30.9 ROCE = 6.64/30.9 = 21.49%
(As before: 7.4 – 1.1 = 6.3) (NFA = 49 – 34 = 15) (Rate of return = 1.1/49 = 0.0224)
Also, with new FLEV of – 0.485, ROCE = 39.62 (– 0.485 × (39.62 – 2.24)) = 21.49%
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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 value]
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