BBBY_AnswerKeyNBA506

BBBY_AnswerKeyNBA506 - JOHNSON GRADUATE SCHOOL OF...

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Unformatted text preview: JOHNSON GRADUATE SCHOOL OF MANAGEMENT CORNELL UNIVERSITY NBA 506 Financial Statement Analysis Spring 2003 Exam Your Name (print) fiNSi/Ue/r Z63 Student ID This exam is closed book, except for the formula sheet you will be given. Use of calculators is allowed and encouraged. It is 150 minutes long (2 hrs 30 minutes). Total points available is 107. Please observe the Honor Policy of the School. 1. Check that you have all 23 pages, but do not start until instructed to do so. 2. Questions will not be answered during the exam, except to explain words or phrases to those whose native language is not English. If you are stuck, make an assumption, state it, and continue. Your grade will reflect the need for the assumption and its reasonableness. 3. Do work you want graded in the space provided, use back of page if necessary. You must turn in the paper before you leave even if you don’t want to have it graded. 4. For most questions involving calculations, you’ll need to show your work to get full marks. 5. Round all your final answers to two decimal places. Degree of Available Your To - ic Difficul Su1ested Time Marks Score E s 5 Cash Flow Anal sis 25 min - Quality of Earnings & Forecastin ; Ba 15 min ___-- 27 19 15 36 ____ ___— Part 1. Profitabilig Analysis a. Using numbers from Bed Bath and Beyond‘s income statement and balance sheet, compute its ROA ,‘ for the year ended March 2, 2002. How does this compare to the RCA of Pier 1 and Williams Sonoma? 4 Pts- 13 ? 1 75 Z¢ W 3/31 W —‘)W Avg Heads ' (gm/7,517+ (msnzsj :Zfifiv 7— ”5/. c: ’92Lazv [::§:E§Z;] b. Disaggregate the RCA in part (a) into its two main components and compare these components to the prior years' numbers (March 3, 2001) provided in exhibit 1. Which component(s) led to the directional change in RCA? 4 pts. goal PW\: 2118?? :: 7.307,, ' 6" 492$?az _”04 NW3: g?;?fi&2 Cellar/cl! anal» pm mama as 1:4st cm was W 504 ”MUCL‘M in asswLTuW (A7233, c. Looking at Bed Bath and Beyond‘s balance sheet, what single line item is most responsible for the \— change in asset turnover relative to the previous fiscal year? Based on this, does the decrease in ROA concern you? 5 pts. «éts/L £3 Corn/nth Si)? 725(511) mu] we. rfFE gawk-9% “wfla/ Quad : 42.00 93.25 , asxei 5"an 10m ("z/Mama) (i n a) opus/Z87 finite”)? ( arm/1mm @ S ALWC) 1Z7 SCI/V1117, ‘ ( ", I m M (once/Lama ob/V%Z alto/£3 r734 €014 0'. Building off of part (c) above, recompute the March 3, 2002 RCA for Bed, Bath, and Beyond assuming that the item identified in (c) is the same percentage of sales as it was on March 3, 2001. Does ROA still exhibit a decline from the 2001 level? 4 pts “ 7376/0 X 07,429 31, ‘222 : 929.2503 *1/73“, 728‘ 2 = /,Z®3,/2"+5 Q ,— { — 0.? lewd. 0"} glifiqflgégi/fi/SO / I )7258 0 60 mew w/D (“Mk {macaw- e. With respect to PPE, does Bed Bath and Beyond have a greater tendency to: (1) use operating leases, or (2) use capital leases / buy their assets? Defend your answer. 4 pts. ti) (vellum): LQCW FNdZ 61mm»; M¥?PEG€43M.7LH 3d l: “4 Shows 0012mm} qumermg 0+ $2,23/ ‘, Wkid‘; WU“ discouflhaj will 612% fwd {L2 tact lvt f. How might your answer in part (e) above impact the comparison of Williams—Sonoma's ROA with BBBY's RCA? 2 pts. WM, swam ~W7§4¢W «News {a cum mm WELZV/O (gages v3. iZ‘/a RB easik/ ‘ («A w, \ > ‘ k ‘ Y \L [UM {LEAP RCA (l'fid +3 %%%¥$, f. Compute the ROE for Bed, Bath, and Beyond for the year ended March 2, 2002. 4 pts. 9161,3391 (coi‘iga’Or 317,018 2. 4‘, ; 523.?87; Part 2. Cash Flow Analysis a. How much cash did Bed Bath and Beyond generate internally over the past three years? 4 pts. 534, tag—51,980 +/%,759*‘/m%’ 1‘“ Iiib’f‘Béw 75732 /:$58/,QZ/ b. What are the three uses of cash over the past year? 3 pts. ‘ Cap Ex ’ - Pwtclwtfi rm regimen-f 512ch [225 *umw «43:: can» ‘ 54:1in CMA bade/r107 jwmi‘“ “3 c. Compute the current and quick ratios for Bed Bath and Beyond for the year ended, March 2 2002. What do these suggest about Bed Bath and Beyond's liquidity? 4 pts. C tum/wt : {2215,71 '51 $11,278 : QLtO d. Compute the percentage Change in inventory for Bed. Bath and Beyond from March 2001 to March 2002. Is this a concern to you? Why or why not. 4 pts 1%‘171 7 ,\ : (Mgr/.9; [Mew ° 1 nULQELSQ - i W (W *° 1&3? e. For this question, assume that BBB requires appro imately‘ sales to be carried as operating cash (i,e. cash working capital). Compute Bed, Bath and Beyond’s free cash flow to equity for the year ended March 2, 2002. 4 pts. 8» a “7° 06 bkflfi$f @l/XQ,?Q%?GO7 : (392075.02 int/LEW m CG-LJN 0955] {137 Oil-Mg’tc‘é : 3990758; I" ‘ $237,328 55 :8LV#433 FC FE .— (“F0 n (27; Ex — Mercy “7% ~ m. ;n (3%.sz : mesa-mm - 759,7?8 6/780 WW (U8)? Avjlold? walk) 3. Compute the TATA ratio for Bed Bath and Beyond for the year ended March 2, 2002. Does this imply a high or low quality of earnings? 4 pts. mm: WMWWW W0 : 40—37% retail/0347’ LADL 0665 b. Exhibit 2 shows the Beneish M-score model for BBBY. Does the company fit the profile of a manipulator? 2 pts. «2.113 Mo’i haunt?- 574$ < ' iv Tit], c. From exhibit 2, which of the components of the M-score provides the strongest indication that BBBY might be a manipulator? Does this concern you (why or why not)? 3 pts Osvéfl SC: 1 WM szj. TAIL View: 1 . ML“; CL (,OL‘iCQA/V] ‘ SI‘AC—(fi L74 54,ng 7401,71; /]c (2/ I k , . I j I / /5 no], ML‘dé/l caudal/9% % d Beyond's quarterly earnings per share history. Use d. Listed below is a recent history of Bed Bath an the Foster model to forecast earnings for Q1and 02 of the next year (the year ending March, 2003). 3:5 and a drift term (delta) of 0.02. 6 pts. Assume an autoregressive (alpha) parameter of O.’ Year ended Year ended March 3, 2002 March 2, 2001 Year Ended March Part 4. Valuation The answers to the following questions should be assumed to hold throughout questions (a) through (e). a. The current beta for Bed Bath and Beyond is 0.95. Assuming a return on the 30-year T-bond of 4.75%. and market risk premium of 5.4%, compute the cost of equity capital for Bed Bath and Beyond. Round your answer to two decimal places. 2 pts. re: Llngnmgxll : <2.ng b. Consensus analyst forecasts of EPS for Bed Bath and Beyond are $0.98 and $1.20 for the years ending March 3, 2003 and March 3, 2004, respectively. Long-term growth is estimated at 28%. Assume a dividend payout ratio of 0.20. Based on this information and any other necessary infomation, calculate the expected residual income per share (i.e. abnormal earnings per share) for the years ending March 2003, March 2004, and March 2005 (assume a constant number of shares outstanding). 6 pts. f1(:.7$’ El: A/l’rlgt’E r-‘I7_=/A20 133N752 /,074,35‘0/gq/13;3L : 37S [Via/L 0:5 ; :73 -;O?33(3'15) " ,, (5073/ 0L$:é/ : [GS’é 61/00 at ‘1 52.3% c. Apply the three—period expansion of the E80 model to calculate a stock price (i.e. intrinsic value estimate) for BBBY at March 3, 2002, using the necessary information from parts (a) and (b). Assume a terminal growth rate in year 3 (Le. “‘g") of 0.04. 4 pts. ‘f -—-" L “r #5 izsgg #0735? (1.073%) (LN/€58 mo. ‘ . ! 92k???" g.%%3 00 All R hes \. ‘3} G d. Why do you think the value in (c) is so different from the current stock price of $31.45? 2 pts. W71 triad, ? ' Wm? cl, , (flawfl flflC/é/ e. The industry average ROE is 17% and that the average Price to Book ratio in the industry is 4.3, based on the EEO model, what would you expect BBBY's P/B ratio to be (circle one)? Defend your choice. 4 pts Less than 3.5 3.5 to 5 Greater than 5 (Le. lower than industry) (approximately the (higher than industry) 10 f. How many options were exercised by the employees of BBBY during the year ended March 2, 2002? What was the weighted average exercise price? 4pts $599,717 @125 9. What was the total net cash inflow to the firm as a result of employees exercising options during the year ended March 3, 2002? 2 pts. PAN—£033 ++I\3 4 - 151753 r 3/3735 3 531,733 h. As a percentage of revenue, what was the value of the options granted to employees during the year ended March 2, 2002? 4pts lefty-561: 3%75/00 / f ‘ M25}; : L/ 3,7912% *1 2,?2 75% 2,000 11 ‘ d i. Assume 100% NSOs are used by BBBY and an effective tax rate of 38.5%. MW - (i) Estimate the total before-tax benefitthat employees received via stock-based compensation for the year ended March 2, 2002. 3 pts W/mem 3/fi50 cfi’ffix Law/f é/r‘rm : ' 5" 7 SA 7%? : 93,0(ag . 5‘63 (ii) If the FASB required the firm to expense this benefit (similar to wage expense), what would be the after—tax impact on BBBY's profit margin? 3 pts <4 BOéb’M/mszs’) :‘sros’f ? 27275642 : #7560 (iii) What would be the impact on BBBY's ROA? 2pts filo/T‘— pm 71470 ATO : 2.06 W i209 chemo/m 6 3,0 5/0 / l2 ...
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