Question 1
The following is a comparative balance sheet for a firm for fiscal year 2015 (in millions of dollars):
|
|
2015
|
2014
|
|
|
2015
|
2014
|
|
Operating cash
|
60
|
50
|
|
Accounts payable
|
1,200
|
1,040
|
|
Short-term investments (at market)
|
550
|
500
|
|
Accrued liabilities
|
390
|
450
|
|
Accounts receivable
|
940
|
790
|
|
Long-term debt
|
1,840
|
1,970
|
|
Inventory
|
910
|
840
|
|
|
|
|
|
Property and plant
|
2,840
|
2,710
|
|
Common equity
|
1,870
|
1,430
|
|
|
5,300
|
4,890
|
|
|
5,300
|
4,890
|
The following is the statement of common shareholders' equity for 2015 (in millions of dollars):
|
Balance, end of fiscal year 2014
|
1,430
|
|
Share issues from exercised employee stock options
|
810
|
|
Repurchase of 24 million shares
|
(720)
|
|
Cash dividend
|
(180)
|
|
Tax benefit from exercise of employee stock options
|
12
|
|
Unrealized gain on investments
|
50
|
|
Net income
|
468
|
|
Balance, end of fiscal year 2015
|
1,870
|
The firm's income tax rate is 35%. The firm reported $15 million in interest income and $98 million in interest expense for 2015. Sales revenue was $3,726 million.
a. Calculate the loss to shareholders from the exercise of employee stock options during 2015.
b. 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?
c. 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.
d. 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 2015.
e. Calculate free cash flow for 2015.
Question 2
The following is from the statement of shareholders' equity for Intel Corporation for 2015 (in millions of dollars). Intel faces a 38% tax rate.
|
Balance, December 25, 2014
|
32,535
|
|
Net income
|
10,535
|
|
Unrealized loss on available-for-sale securities
|
(3,596)
|
|
Issuance of shares through employee stock plans, net of tax benefit of $887 million
|
1,684
|
|
Reclassification of put warrant obligation
|
130
|
|
Amortization of unearned compensation
|
26
|
|
Conversion of subordinated notes to common stock (market value of stock was $350 million)
|
207
|
|
Repurchase of common stock
|
(4,007)
|
|
Cash dividends
|
(470)
|
|
Issuance of shares for acquisitions
|
278
|
|
|
37,322
|
Calculate comprehensive income to Intel's shareholders for 2015, being sure to include any hidden dirty surplus expenses.
Question 3
Below are some summary numbers for a firm for fiscal years 2014 and 2015 (in millions of
dollars).
|
|
2014
|
2015
|
|
Sales
|
12,257
|
12,867
|
|
Operating income (after tax)
|
858
|
772
|
|
Net financial expense (after tax)
|
56
|
98
|
|
Comprehensive income
|
802
|
674
|
|
Average net operating assets
|
4,903
|
4,949
|
|
Average common equity
|
3,503
|
2,149
|
(a) Calculate return on common equity (ROCE), return on net operating assets (RNOA), and net borrowing cost (NBC) for the two years.
(b) How much of the change in ROCE over the two years is due to:
(I) Change in profit margin
(II) Change in asset turnover
(III) Change in financial leverage
(IV) Change in borrowing costs?
Question 4
The following are summary income statement and balance sheet numbers for a firm (in millions of dollars). The firm has a required return for operations of 9%.
|
|
2012
|
2013
|
2014
|
2015
|
|
Sales
|
1,906
|
1,985
|
2,064
|
2,147
|
|
Core operating expenses
|
1,773
|
1,846
|
1,919
|
1,997
|
|
Core operating income
|
133
|
139
|
145
|
150
|
|
Unusual operating income
|
------
|
-----
|
(45)
|
60
|
|
|
133
|
139
|
100
|
210
|
|
Net financial expense
|
7
|
8
|
8
|
9
|
|
Comprehensive income
|
126
|
131
|
92
|
201
|
|
Net operating assets
|
945
|
983
|
1,022
|
1,063
|
|
Net financial obligations
|
150
|
155
|
175
|
120
|
|
Common equity
|
795
|
828
|
847
|
943
|
(a) Prepare a table giving the following for 2013- 2015. Use beginning-of-period balance sheet numbers in denominators.
- Return on common equity (ROCE)
- Return on net operating assets (RNOA)
- Core return on net operating assets (Core RNOA)
- Free cash flow
- Net payments to common shareholders
- Net payments to net debt holders
- Asset turnover
- Core profit margin
- Growth rate for net operating assets
(b) On the basis of these financial statements, forecast
(i) Residual operating income for 2016 and 2017.
(ii) Abnormal operating income growth for 2017.