Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

problem 1  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

2 The firm's statutory tax rate is 35.3%.
(a.) Supply the missing numbers, A to J.
A =

B =

C =

D =

E =

F =

G =

H =

I =

J =


(If you are unable to find out one of these numbers, make a reasonable guess before proceeding to part (b) of the problem.)

(b) find out the following for 2004. Use beginning of year balance sheet numbers in denominators.
Comprehensive income
Core operating income, after tax
Net financial expense, after tax
Return on net operating assets (RNOA)
Core return on net operating assets (Core RNOA)
Net borrowing cost (NBC)
Free cash flow
Net payments to debt holders and debt issuers

(c) Show that the following relation holds for this firm:
ROCE = RNOA + (Financial Leverage x Operating Spread)

(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)]        

(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.

(f) Value the equity under a forecast that (i) Return on net operating assets in the future will be the same as coreRNOA 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%.

(g) find out 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)]

(h) find out 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)]                                                                         

problem 2 

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.
find out Microsoft's return on common equity (ROCE) for 2004.


Holding all else constant what would Microsoft's ROCE be after the payout of $34 billion?Would you expect the payout to increase or decrease earnings growth in the future? Why?What effect would you expect the payout to have on the value of a Microsoft share? 

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M914263
  • Price:- $30

Priced at Now at $30, Verified Solution

Have any Question? 


Related Questions in Basic Finance

At the end of 2011 home depots total capitalization

At the end of 2011 Home Depot's total capitalization amounted to $28,992 million. In 2012 debt investors received interest income of $635 million. Net income to shareholders was $4,526 million. (Assume a tax rate of 35%. ...

Explain the impact of revenue sources and expenditures on

Explain the impact of revenue sources and expenditures on budget building. Minimum of 250 words with a scholarly reference.

Consider a 75000 30-year fixed-rate mortgage with 775

Consider a $75,000, 30-year, fixed-rate mortgage with 7.75 percent interest and monthly payments. The lender requires that the borrower pay two points to originate the loan. a) If the expected holding period is 30 years, ...

1 after reading your report as well as comments by

1. After reading your report, as well as comments by others on the team, the Genesis Energy team began to understand the importance of cash flow and financing in high-growth scenarios. The Genesis Energy accountant sugge ...

Mgs corporation is expected to generate cash flows 109

MGS Corporation is expected to generate cash flows $10.9 million per year.MGS Corporation has a personal debt of $40 million at 5% cost,a tax rate of 26% and an unlevered cost of capital of 10%. (a) Calculate the value o ...

The final paper ought to show an understudys capacity to

The Final Paper ought to show an understudy's capacity to incorporate and orchestrate course ideas with chose readings to impart his/her comprehension of legal bookkeeping, extortion ideas, and their applications in asso ...

Explain why the traditional interest-rate channel of

Explain why the traditional interest-rate channel of monetary policy transmission from monetary policy actions to changes in investment and consumption decisions may be relatively weak.

If you have a portfolio with a market value of 1000000 and

If you have a portfolio with a market value of $1,000,000 and a beta (measured against the S&P 500) of 0.7, then if the market rises by 9.6 percent, what value would you expect your portfolio to have?

Both changes in income and changes in the interest rate

Both changes in income and changes in the interest rate affect spending. Which has a greater effect? Explain.

Throughout this course you will prepare a comprehensive

Throughout this course, you will prepare a comprehensive financial analysis and proposal (excluding tables, figures, and addenda) that will demonstrate your understanding of key financial concepts, strategies, and practi ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate