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

1 what is the difference between the assignment of a

1. What is the difference between the assignment of a take-out commitment to the construction lender and a triparty agreement? If neither device is used in project financing, what is the relationship between lenders in s ...

1read the following article on dimensional fund

1. Read the following article on Dimensional Fund Advisors: http://www.wsj.com/articles/making-billions-with-one-belief-the-markets-cant-be-beat-1476989975 Write a composed essay (1 page max) addressing the following que ...

What is the firms goal with regard to cash collections

What is the firm's goal with regard to cash collections? Describe each of the following types of collection systems: a. Field-banking system b. Mail-based collection system c. Electronic system.

1 distinguish between the operations of a mortgage banker

1. Distinguish between the operations of a mortgage banker and a mortgage broker. What are the five major minimum standards that an independent mortgage broker or loan office must pass to be licensed with the NMLS? 2. Wh ...

1 what do economists mean by a bubble why do many

1. What do economists mean by a "bubble"? Why do many economists believe that there was a housing bubble in the United States between 2000 and 2005? 2. By the 2000s, what significant changes had taken place in the mortga ...

Future value kyle has 1000 in cash received for high school

Future Value. Kyle has $1,000 in cash received for high school graduation gifts from various relatives. He wants to invest it in a certificate of deposit (CD) so that he will have a down payment on a car when he graduate ...

Push for year end sales-ethicalthe boyer company

Push for Year End Sales-Ethical? The Boyer Company manufactures snow blowers. It has been a warm fall and sales have declined materially. This has resulted in a buildup of inventory. Required a. In early December the Boy ...

The ceo of a large corporation holds a position of 25

The CEO of a large corporation holds a position of 25 million shares in her company's stock, which is currently priced at $20 and pays no dividends. She is concerned that, because of her large shareholdings and the fact ...

Answer the following questions as they relate to implied

Answer the following questions as they relate to implied volatilities. a. Can implied volatilities be expected to vary for options on the same stock with the same exercise prices but different expirations? b. Can implied ...

If you were a commercial credit analyst charged with the

If you were a commercial credit analyst charged with the responsibility of making an accept/reject decision on a company's loan request, with which financial statement would you be most concerned? Which financial stateme ...

  • 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

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen