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

1corporate share repurchase programs are often touted as a

1. Corporate share repurchase programs are often touted as a benefit for shareholders. But Robert Gabele, director of insider research for First Call/ Thomson Financial, noted that many of these programs are undertaken s ...

Suppose one year ago a swiss investor bought one year us

Suppose one year ago a Swiss investor bought one year U.S. Treasury bills at a price of $9,500 with a maturity value of $10,000. The exchange rate at that time was 1.420 Swiss francs per dollar. Today, at maturity, the i ...

What are inventories briefly explain what happens to the

What are inventories? Briefly explain what happens to the level of inventories when aggregate expenditure is greater than real GDP, what happens when aggregate expenditure is less than real GDP, and what happens when agg ...

Suppose congress decides that investors should not profit

Suppose Congress decides that investors should not profit when stock prices go down so it outlaws short selling. Congress has not figured out options, however, so there are no restrictions on option trading. Explain how ...

1 how has the community development block grant served to

1. How has the Community Development Block Grant served to help communities perform local mitigation? 2. Why do some people consider insurance to not be a proper mitigation method? 3. Why are structural controls a contro ...

A firm has the choice of investing in one of two projects

A firm has the choice of investing in one of two projects. Both projects last for one year. Project 1 requires an investment of $11,000 and yields $11,000, with a probability of 0.5, and $13,000, with a probability of 0. ...

Budgetsmith manufacturing inc has asked for your assistance

Budget Smith Manufacturing, Inc. has asked for your assistance in preparing a budget for next year's operations. Take a few moments to consider where you would begin the budgeting process.What types of information do you ...

A nut having an effective length of 2 in and a 12-16 un

A nut having an effective length of 2 in. and a 1/2-16 UN thread is snug tightened and then turned 308. How much preload will that create in the bolt? Is that an acceptable preload? Describe the typical torque-turn tight ...

1 in addition to the key words that were defined in the

1. In addition to the key words that were defined in the text, you should be able to define the following terms, which also appear in the Glossary: replication pseudoscience 2. Describe one way in which understanding res ...

Finance1on a typical day park place clinic writes 1000 in

Finance 1. On a typical day, Park Place Clinic writes $1,000 in checks. It generally takes four days for those checks to clear. Each day the clinic typically receives $1,000 in checks that take three days to clear. What ...

  • 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