chapter 3 - Kelly Legner Acct 815 Chapter 3 Exercises 1. A....

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Kelly Legner Acct 815 Chapter 3 Exercises 1. A. (33.2) million B. Campbell Soup’s debt footnote indicates maturities of (in $millions) $227.7 in Year 12, $118.9 in Year 13, $17.8 in Year 14, $15.9 in Year 15, and $108.3 in Year 16. The remaining long-term debt matures in excess of 5 years. Given Campbell’s operating cash flow of $805.2 million, solvency does not appear to be a problem. Further, Campbell reports net income of $401.5, well in excess of its interest expense of $116.2 in Year 11, an interest coverage ratio of 6.7 [$667.4 + $116.2]/ $116.2). The company should also be able to meet its interest obligations. Campbell reports total liabilities of $2,355.6 million ($1278+$772.6+$305) against stockholders’ equity of $1,793.4 million, a 1.3 times multiple. The amount of debt does not appear to be excessive. Nor does the company appear to be underutilizing its equity. Given present debt levels that are not excessive and adequate cash flow, the company should be able to finance additional investments with debt if desired by management. 8. The causes of the $101.6 million increase are identified in the table below (see Campbell’s Consol. Statement of Owners’ Equity and Changes in Number of Shares): Millions 11 10 Net Income. .................................................................... $401.5 $ 4.4 (28) Cash Dividends ................................................. (142.2) (89) (126.9) (87) Treasury Stock Purchase. ............................................... (175.6) (41.1) (87) Treasury Stock Issued Capital Surplus. ........................................................ 45.4 (91) 11.1 (87) Treasury Stock. ......................................................... 12.4 (91) 4.6 (87) Translation Adjustment. ................................................. (29.9) (92) 61.4 (87)
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Kelly Legner Acct 815 Chapter 3 Sale of foreign operations. .............................................. (10.0) (93) Increase in Stockholders' Equity. ................................... 101.6 a (86.5) b a 1,793.4 [54] b 1,691.8 [54] - 1,691.8 1,778.3 [87] 6. (86 .5) B. $175.6 million 1 / 3.395 million treasury shares purchased = $51.72 C. 1,793.4 / 127.0 (135.6-8.6) = $14.12 D. The book value per share of common stock is $14.12. However, shares were purchased during the year at an average of about $52 per share (an indicator of market value during the year). In fact, according to note 24 to the financial statements the stock traded in the $70 - $80 range in the fourth quarter of Year 11. There are several reasons why the market value of the stock is much higher than the book value of the stock. First, the market value impounds the investors’ beliefs about the future earning power of the company. Investors apparently have high expectations regarding future profitability. Second, the book value is recorded using accounting conventions such as historical cost and conservatism. Each of these conventions is designed to
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This note was uploaded on 05/23/2011 for the course ACCT 815 taught by Professor Fontana during the Summer '09 term at Governors State University.

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chapter 3 - Kelly Legner Acct 815 Chapter 3 Exercises 1. A....

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