Chapter_09web - EXERCISES FOR CHAPTER 9 With Solutions A...

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EXERCISES FOR CHAPTER 9 With Solutions A Reformulation A firm whose shares traded at three times their book value on December 31, 1998 had the following financial statements. Amounts are in millions of dollars. Balance Sheet, December 31, 1998 Assets Liabilities and Shareholders’ Equity 1998 1997 1998 1997 Operating cash 50 20 Accounts payable 215 205 Short-term investments 150 150 Long-term debt 450 450 Accounts receivable 300 250 Inventories 420 470 Common equity 1,095 1,025 Property and plant (net) 840 790 ____ ____ 1,760 1,680 1,760 1,680 Income Statement, Year Ended December 31, 1998 Sales 3,295 Interest income 9 Operating expenses 3,048 Interest expense 36 Tax expense 61 (3,145) Net income 159 The firm’s marginal tax rate is 33%. Short-term investments and long-term debt are at market value on the balance sheet. There are no dirty-surplus income items in the balance sheet. Reformulate these financial statements.
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A Reformulation: Solution Reformulated balance sheets : 1998 1997 Average Net operating assets (NOA) 1395 1325 1360 Net financial obligations (NFO) 300 300 300 Common shareholders’ equity (CSE) 1095 1025 1060 Net operating assets: operating cash + accounts receivable + inventories + property – accounts payable Net financial obligations: long-term debt – short-term investments. Reformulated income statement
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This note was uploaded on 10/07/2010 for the course ECTCS ec12947322 taught by Professor Johnathayeri during the Spring '10 term at Life.

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Chapter_09web - EXERCISES FOR CHAPTER 9 With Solutions A...

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