Sample Answer KeysQuestion: Be sure to identify and explain the significance of each component. Evaluate the results. Yourevaluation should comment on the effectiveness of the company’s use of leverage.Answer: UP UP UP DOWN; ROA increased significantly, thus increasing ROCE. CEL was up some and CSL down.; APA is using leverage successfully because ROCE is greater than ROA.Question: Compute the following ratios for 2008 and 2007 and advise Rocko as to APA’s solvency riskAnswer: APA’s debt level increased in relation to stockholders’ equity, but is still at a reasonable level compared to total PPE of ~$24 billion. Interest coverage based on cash flows is strong for both years and increased significantly in 2008.Answer: a. APA follows the full-cost approach b. Matching. c. Successful efforts would be the most conservative, that is, least likely to overstate assets and income. Under the successful efforts approach, amounts capitalized (and therefore net income) would be much less. d. Exxon is an industry giant and most likely (and if fact does) use the successful
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