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 discuss the pros and cons of using naturalistic versus

1. Discuss the pros and cons of using naturalistic versus contrived observation. 2. What special opportunities and problems does participant observation create for researchers? 3. What does it mean if a behavior is react ...

1 why review the disclosure of allowance for loan losses

1. Why review the disclosure of allowance for loan losses for a bank? 2. Why review the disclosure of nonperforming assets for banks? 3. Why could a review of savings deposit balances be important when reviewing a bank's ...

Ethical dilemma- rita is the office manager of a

Ethical Dilemma:- Rita is the office manager of a three-doctor practice. Her brother, Juan, a recent college graduate, recently started working for a large insurance company that specializes in health insurance. In attem ...

1 explain what a case study is discuss the limitations of

1. Explain what a case study is. Discuss the limitations of case studies for the study of human behavior. 2. What is systematic observation, and what techniques are used to make observations systematic? 3. What kinds of ...

If a company has a degree of financial leverage of 20 what

If a company has a degree of financial leverage of 2.0, what is the expected effect of a 2% increase in operating earnings to the earnings to owners? How may using debt financing increase the governance of a company? Exp ...

1 identity theft what constitutes identity theft2 identity

1. Identity Theft. What constitutes identity theft? 2. Identity Theft. Is identity theft only perpetrated to acquire money, goods, or services? 3. Impact of Identity Theft. Aside from the financial losses, what other neg ...

Complete the given assignment-two population meansa tomato

Complete the given assignment:- Two Population Means A tomato farmer with a very large farm of approximately 2200 acres had heard about a new type of rather expensive fertilizer which would supposedly significantly incre ...

1 small savers can usually receive a higher interest rate

1. Small savers can usually receive a higher interest rate from money market mutual funds than from bank savings accounts. So, how are banks able to attract small savers? 2. Financial journalist David Wessel has describe ...

Identify the three parties involved in any credit

Identify the three parties involved in any credit derivatives transaction and describe how they differ in their roles and responsibilities with regard to the transaction? If a portfolio of derivatives is delta hedged by ...

1 what is a tariff what is a quota what are the

1. What is a tariff? What is a quota? What are the implications of tariffs and quotas for the theory of PPP? 2. According to a survey of professional foreignexchange traders, the theory of purchasing power parity is cons ...

  • 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

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

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