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118-1-F'08-MIDTERM-CATERPILLAR-KEY

118-1-F'08-MIDTERM-CATERPILLAR-KEY - Econ 118-1Financial...

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Econ 118-1–F’08–Midterm – ANSWER KEY p1 Econ 118-1–Financial Statement Analysis–F’08 Midterm Exam – 100 points ANSWER KEY All questions are based on the annual report of Caterpillar Inc. (CAT) The questions that follow are based on selected pages from CAT’s 2007 annual report on Form 10-K, which are attached. Use year-end numbers where a formula calls for an average. The U.S. federal statutory tax rate was 35% for all periods. Show all your work. Clearly label all answers. Watch your pluses and minuses! Question 1 – Return on assets (50 points) Compute return on assets for 2007 and 2006. Disaggregate ROA into its two components. Evaluate the results. Where an interest expense amount is required, use only “Interest expense excluding Financial Products.” Assume that there are no “special items” included in the income statement caption “Other income (expense)”. ROA NI + (1 - t) Int exp + MI in NI +/- After-tax special items ROA = ___________________________________________________ Year-end (vs average) total assets 2007 ROA = NI Int exp 3,541 + (1 - .35) 288 3,728 _________________________________________ = _______ = 6.642% 56,132 56,132 2006 ROA = NI

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118-1-F'08-MIDTERM-CATERPILLAR-KEY - Econ 118-1Financial...

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