SD15-Valuation of Firms Pention Plan and OTHER POSTEMPLOYMENT BENEFIT PLANS

SD15-Valuation of Firms Pention Plan and OTHER POSTEMPLOYMENT BENEFIT PLANS

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER 15 VALUATION OF FIRMS WITH PENSION PLANS AND OTHER POSTEMPLOYMENT BENEFIT PLANS LEARNING OBJECTIVES 1. The difference between defined contribution and defined benefit plans. 2. The meaning and importance of economic ownership. 3. How defined contribution and defined benefit plans are reported in financial statements and footnotes. 4. How a valuation incorporates defined contribution and defined benefit plans. 5. What plan assets are and why they are nonoperating assets in a valuation. 6. What benefit obligations are and why they are capital claims in a valuation. 7. How to adjust plan assets and benefit obligations for income tax effects before including them in a valuation. 8. What service costs are and why they are free cash flow equivalents. TRUE/FALSE QUESTIONS 1. When a firm sponsors a defined contribution plan, employees reap the rewards and bear the risks of investing their assets in the plan. (easy, L.O. 1, Section 1, true) 2. Whether a retirement plan defines contributions or benefits determines both the financial reporting rules and the way an analyst incorporates a plan into the valuation of a firm. (moderate, L.O. 1, Section 1, true) 3. In a defined contribution plan employers have no guarantee as to the amounts they will ultimately have to contribute to fund the plan. (moderate, L.O. 1, Section 1, false) 4. Legal ownership belongs to the entity whose welfare is affected by changes in the value of the asset. (moderate, L.O. 2, Section 1, false) 5. An analyst treats firm payments into a defined contribution plan in the same manner as salary payments to employees. (moderate, L.O. 2, Section 2, true) 6. The measurement of the legal liability of a defined benefit plan is known as its funded status. (moderate, L.O. 4, Section 3, false) 7. The funded status of a defined benefit plan represents either an asset or liability, depending on its sign. (difficult, L.O. 4, Section 3, true) 8. The funded status, economic cost, and GAAP assets or liabilities are mutually exclusive in a defined benefit plan. (moderate, L.O. 4, Section 3, false) 9. The economic cost of a defined benefit plan is the change in its funded status not due to contributions. (moderate, L.O. 4, Section 3, true) 100
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
10. If defined benefit plan assets exceed the projected benefit obligation, the funded status is negative and the plan is overfunded. (moderate, L.O. 5, Section 3, false) 11. The PBO is the present value of the portion of future retirement benefits employees have earned. (moderate, L.O. 5, Section 3, true) 12. The value to the firm of the PBO is its reported value multiplied by one minus the marginal tax rate. (moderate, L.O. 6, Section 4, true) 13. When a firm has a defined benefit pension plan, nonoperating assets include service cost, other capital claims include plan assets, and free cash flow includes the PBO.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 8

SD15-Valuation of Firms Pention Plan and OTHER POSTEMPLOYMENT BENEFIT PLANS

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online