MSAF 670 Final Exam – Spring 2015
Student Name: ________________
MSAF 670 Final Exam – Spring 2015
1. (10 points) Refer to Chapter 8 in your text. Recalculate the forecasts in Tables 8-2 assuming that the ratio of net operating working capital to sales is 3 percent, and the ratio of net long-term assets to sales holds steady at 33.4 percent for all the years from fiscal 2011 to fiscal 2020. Keep all the other assumptions unchanged. Show the effects on all items.
2. (15 points)In early 2003, Bristol-Myers Squibb announced that it would have to restate its financial statements as a result of stuffing as much as $3.35 billion worth of products into wholesalers' warehouses 1999 through 2001. The company’s sales and cost of sales during this period was as follows:
|
2001 |
2000 |
1999 |
||
|
Net sales |
$ 18,139 |
$ 17,695 |
$ 16,502 |
|
|
Cost of products sold |
5,454 |
4,729 |
4,458 |
|
The company’s marginal tax rate during the three years was 35%.
What adjustments are required to correct Bristol-Myers Squibb’s balance sheet for December 31, 2001? What assumptions underlie your adjustments? How would you expect the adjustments to affect Bristol-Myers Squibb’s performance in the coming few years?
3.Refer to Chapter 4. (20 points) Refer to the Lufthansa example on asset depreciation estimates. What adjustments would be required if Lufthansa’s aircraft depreciation were computed using an average life of 25 years and salvage value of 5% (instead of the reported values of 12 years and 15%)? Show the adjustments to the 2008 and 2009 balance sheets, and to the 2009 income statement.
4.(10 Points) Consider the following two earnings forecasting models:
Model 1: Et(EPSt+1) = EPSt
Model 2: Et(EPSt+1) =
Et(EPS) is the expected forecast of earnings per share for year t+1, given information available at t. Model 1 is usually called the random walk Model for earnings, whereas Model 2 is called the mean-reverting model. The earnings per share for Ford Motor Co. for the period 1990 to 1994 are as follows:
|
Year |
1 |
2 |
3 |
4 |
5 |
|
EPS |
$0.93 |
$(2.40) |
$(0.73) |
$2.27 |
$4.97 |
a. What would be the year 6 forecast for earnings per share for each of the two earnings forecasting models?
b. Actual earnings per share for Ford in year 6 were $3.58. Given this information, what would be the year 7 forecast for earnings per share for each model? Why do the two models generate quite different forecasts? Which do you think would better describe earnings per share patterns
Why?
5. ?(45 points) Use the sample templates in Tables 4-1, 4-2, and 4-3 as a reference to recast the financial statements for Amazon.com below. Step 1 is to classify the lines appropriately, then step 2 is to aggregate like items to produce the standardized
Helpful Notes:(a) fulfillment costs – these are viewed as cost of sales for most retailers; (b) stock option costs – these are probably for senior management and hence should probably be classified as SG&A; and (c) in the cash flow statement gains and losses on currency translations (shown at the end of the statement are shown as operating factors that imply that cash from operations in the standardized format does not equate to that reported by the firm.
See Week 4 Discussion forum for example.
Income Statement
|
Classifications |
|
2002 |
2001 |
2000 |
|
Net sales |
$3,932,936 |
$3,122,433 |
$2,761,983 |
|
|
Cost of sales |
2,940,318 |
2,323,875 |
2,106,206 |
|
|
Gross profit |
992,618 |
798,558 |
655,777 |
|
|
Operating expenses: |
||||
|
Fulfillment |
392,467 |
374,250 |
414,509 |
|
|
Marketing |
125,383 |
138,283 |
179,980 |
|
|
Technology and content |
215,617 |
241,165 |
269,326 |
|
|
General and administrative |
79,049 |
89,862 |
108,962 |
|
|
Stock-based compensation |
68,927 |
4,637 |
24,797 |
|
|
Amortization of goodwill and other intangibles |
5,478 |
181,033 |
321,772 |
|
|
Restructuring-related and other |
41,573 |
181,585 |
200,311 |
|
|
Total operating expenses |
$928,494 |
$1,210,815 |
$1,519,657 |
|
|
Income (loss) from operations |
64,124 |
-412,257 |
-863,880 |
|
|
Interest income |
23,687 |
29,103 |
40,821 |
|
|
Interest expense |
-142,925 |
-139,232 |
-130,921 |
|
|
Other income (expense), net |
5,623 |
-1,900 |
-10,058 |
|
|
Other gains (losses), net |
-96,273 |
-2,141 |
-142,639 |
|
|
Total non-operating expenses, net |
($209,888) |
($114,170) |
($242,797) |
|
|
Loss before equity in losses of equity-method investees |
-145,764 |
-526,427 |
-1,106,677 |
|
|
Equity in losses of equity-method investees, net |
-4,169 |
-30,327 |
-304,596 |
|
|
Loss before change in accounting principle |
($149,933) |
($556,754) |
($1,411,273) |
|
|
Cumulative effect of change in accounting principle |
801 |
-10,523 |
||
|
Net loss |
($149,132) |
($567,277) |
($1,411,273) |
Balance Sheet
|
Classifications |
Year Beginning January 1, ($000's) |
2003 |
2002 |
|
Current assets: |
|||
|
Cash and cash equivalents |
$738,254 |
$540,282 |
|
|
Marketable securities |
562,715 |
456,303 |
|
|
Inventories |
202,425 |
143,722 |
|
|
Accounts receivable, net & other current assets |
112,282 |
67,613 |
|
|
Total current assets |
$1,615,676 |
$1,207,920 |
|
|
Fixed assets, net |
239,398 |
271,751 |
|
|
Goodwill, net |
70,811 |
45,367 |
|
|
Other intangibles, net |
3,460 |
34,382 |
|
|
Other equity investments |
15,442 |
28,359 |
|
|
Other assets |
45,662 |
49,768 |
|
|
Total assets |
$1,990,449 |
$1,637,547 |
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT |
|||
|
Current liabilities: |
|||
|
Accounts payable |
618,128 |
444,748 |
|
|
Accrued expenses and other current liabilities |
314,935 |
305,064 |
|
|
Unearned revenue |
47,916 |
87,978 |
|
|
Interest payable |
71,661 |
68,632 |
|
|
Current portion of long-term debt and other |
13,318 |
14,992 |
|
|
Total current liabilities |
$1,065,958 |
$921,414 |
|
|
Long-term debt and other |
2,277,305 |
2,156,133 |
|
|
Shareholders’ deficit |
|||
|
Common stock, $0.01 par value: Authorized shares 5,000,000 Issued and outstanding shares -- 387,906 and 373,218 shares, respectively |
3,879 |
3,732 |
|
|
Additional paid-in capital |
$1,649,946 |
$1,462,769 |
|
|
Deferred stock-based compensation |
-6,591 |
-9,853 |
|
|
Accumulated other comprehensive income (loss) |
9,662 |
-36,070 |
|
|
Accumulated deficit |
-3,009,710 |
-2,860,578 |
|
|
Total stockholders' deficit |
($1,352,814) |
($1,440,000) |
|
|
Total liabilities and stockholders' deficit |
1,990,449 |
1,637,547 |
Cash Flow Statement
|
Classifications |
Year Ended December 31, ($000's) |
2002 |
2001 |
2000 |
|
OPERATING ACTIVITIES: |
||||
|
Net loss |
($149,132) |
($567,277) |
($1,411,273) |
|
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
||||
|
Depreciation of fixed assets and other amortization |
82,274 |
84,709 |
84,460 |
|
|
Stock-based compensation |
68,927 |
4,637 |
24,797 |
|
|
Equity in losses of equity-method investees |
4,169 |
30,327 |
304,596 |
|
|
Amortization of goodwill and other intangibles |
5,478 |
181,033 |
321,772 |
|
|
Non-cash restructuring-related and other |
3,470 |
73,293 |
200,311 |
|
|
Gain on sale of marketable securities, net |
-5,700 |
-1,335 |
-280 |
|
|
Other losses (gains), net |
96,273 |
2,141 |
142,639 |
|
|
Non-cash interest expense and other |
29,586 |
26,629 |
24,766 |
|
|
Cumulative effect of change in accounting principle |
-801 |
10,523 |
||
|
Changes in operating assets and liabilities: |
||||
|
Inventories |
-51,303 |
30,628 |
46,083 |
|
|
Accounts receivable, net and other cur. assets |
-32,948 |
20,732 |
-8,585 |
|
|
Accounts payable |
156,542 |
-44,438 |
22,357 |
|
|
Accrued expenses and other current liabilities |
4,491 |
50,031 |
93,967 |
|
|
Unearned revenue |
95,404 |
114,738 |
97,818 |
|
|
Amortization of previously unearned revenue |
-135,466 |
-135,808 |
-108,211 |
|
|
Interest payable |
3,027 |
-345 |
34,341 |
|
|
Net cash provided by (used in) operating activities |
$174,291 |
($119,782) |
($130,442) |
|
|
Year Ended December 31, ($000's) |
2002 |
2001 |
2000 |
|
|
|
INVESTING ACTIVITIES: |
|||
|
|
Sales/maturities of marketable securities and investments |
553,289 |
370,377 |
545,724 |
|
|
Purchases of marketable securities |
-635,810 |
-567,152 |
-184,455 |
|
|
Purchases of fixed assets, including internal-use software |
-39,163 |
-50,321 |
-134,758 |
|
|
Investments (including in equity-method investees) |
|
-6,198 |
-62,533 |
|
Net cash provided by (used in) investing activities |
($121,684) |
($253,294) |
$163,978 |
|
|
|
FINANCING ACTIVITIES: |
|||
|
Proceeds from exercise of stock options and other |
121,689 |
16,625 |
44,697 |
|
|
Proceeds from issuance of common stock, net of issue costs |
99,831 |
|||
|
Proceeds from long-term debt and other |
10,000 |
681,499 |
||
|
Repayment of capital lease obligations and other |
-14,795 |
-19,575 |
-16,927 |
|
|
Financing costs |
|
|
-16,122 |
|
|
Net cash provided by financing activities |
$106,894 |
$106,881 |
$693,147 |
|
|
Effect of exchange-rate changes on cash and cash equivalents |
38,471 |
-15,958 |
-37,557 |
|
|
Net increase (decrease) in cash and cash equivalents |
$197,972 |
($282,153) |
$689,126 |
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Rating:
/5
Solution: MSAF 670 Final Exam – Spring 2015