Chapter_08web - EXERCISES FOR CHAPTER 8 With Solutions...

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EXERCISES FOR CHAPTER 8 With Solutions Reformulation of an Equity Statement The following is an incomplete statement of shareholders' equity (in millions of dollars). Balance, December 31, 1999 473 Net income ? Common dividends ? Preferred dividends (10) Issue of common stock 152 Unrealized loss on securities available for sale (19) Foreign currency translation gain 12 Balance, December 31, 2000 ? The firm had no net debt (a pure equity firm) and reported a net profit margin of 12½% of sales of $4,096 million in its 2000 income statement. The firm also generated free cash flow of $76 million during 2000. a) Supply the missing numbers in the equity statement. b) Reformulate the completed statement of shareholders' equity to identify comprehensive income for the common shareholders.
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Reformulation of an Equity Statement: Solution a) Get net income from profit margin: As profit margin = 12 ½%, net income = 4,096 x 0.125 = 512 Now get common dividends” As there is no net debt, net dividends = free cash flow = 76 Dividends paid to common = 76 + 152 = 228 (net dividends + share repurchases) Total to get ending book value: Ending balance, 12/31/00 = 892 b) Beginning balance, 12/31/99
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Chapter_08web - EXERCISES FOR CHAPTER 8 With Solutions...

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