Chapter 7 Solutions
Overview:
Problem Length
Problem #s
{S}
2, 3, 5, 8, and 10
{M}
1, 4, 6, 7, 9, 11, 12, and 13
Appendices
{M}
7A-1 and 7B-1
{L}
7A-2 and 7B-2
1.{M}
Exhibit 7S-1 contains the calculations required.
Exhibit 7S-1. Chevron
Adjustments for Capitalization of Interest
Amounts in $ millions
part c
Year
1995
1996
1997
1998
1999
1999/95
As reported
Interest expense
$ 401 $ 364 $ 312 $ 405 $ 472
1.18
Pretax income
1,789 4,740 5,502 1,834 3,648
2.04
Net income
930 2,607 3,256 1,339 2,070
2.23
Capitalized interest
141
108
82
39
59
Amortization of
capitalized interest
47
24
28
35
9
a. Calculations
EBIT
$2,190 $5,104 $5,814 $2,239 $4,120
Times interest earned
5.46
14.02
18.63
5.53
8.73
1.60
b. Adjusted
Net capitalized interest $
94 $
84 $
54 $
4 $
50
After 35% income tax
61
55
35
3
33
Interest expense
542
472
394
444
531
0.98
EBIT
2,237 5,128 5,842 2,274 4,129
(i) Times interest
earned
4.13
10.86
14.83
5.12
7.78
1.88
(ii) % reduction from
reported ratio
-24.4%
-22.5%
-20.4%
-7.4%
-10.9%
Pretax income
$1,695 $4,656 $5,448 $1,830 $3,598
2.12
(iii) Net income
869 2,552 3,221 1,336 2,038
2.34
% reduction from
reported
-6.6%
-2.1%
-1.1%
-0.2%
-1.6%
7-1