Posted: February 8th, 2019
MSAF 670 Final Exam â Spring 2015
Student
Name: ________________
MSAF 670 Final Exam â
Spring 2015
1. (10 points) Refer to Chapter 8 in your text. Recalculate
the forecasts in Tables 8-2 assuming that the ratio of net operating working
capital to sales is 3 percent, and the ratio of net long-term assets to sales
holds steady at 33.4 percent for all the years from fiscal 2011 to fiscal 2020.
Keep all the other assumptions unchanged. Show the effects on all items.
2.
(15 points)In early 2003, Bristol-Myers Squibb announced that it would have to restate its financial statements as a result
of stuffing as much as $3.35 billion worth of products into wholesalers’
warehouses 1999 through 2001. The companyâs sales and cost of sales during this
period was as follows:
2001
2000
1999
Net sales
$ 18,139
$ 17,695
$ 16,502
Cost of products sold
5,454
4,729
4,458
The
companyâs marginal tax rate during the three years was 35%.
What adjustments are required to correct Bristol-Myers
Squibbâs balance sheet for December 31,
2001? What assumptions underlie your adjustments? How would you expect the
adjustments to affect Bristol-Myers Squibbâs performance in the coming few years?
3.
Refer
to Chapter 4. (20 points) Refer to the Lufthansa example on asset depreciation
estimates. What adjustments would be required if Lufthansaâs aircraft
depreciation were computed using an average life of 25 years and salvage value
of 5% (instead of the reported values of 12 years and 15%)? Show the
adjustments to the 2008 and 2009 balance sheets, and to the 2009 income
statement.
4. (10
Points) Consider the following two earnings forecasting models:
Model 1: Et(EPSt+1)
= EPSt
Model 2: Et(EPSt+1) =.png”>
Et(EPS) is the expected forecast of
earnings per share for year t+1, given information available at t. Model 1 is usually called the random walk
Model for earnings, whereas Model 2 is called the mean-reverting model. The earnings per share for Ford Motor Co. for
the period 1990 to 1994 are as follows:
Year
1
2
3
4
5
EPS
$0.93
$(2.40)
$(0.73)
$2.27
$4.97
a. What would be the year 6 forecast for earnings
per share for each of the two earnings forecasting models?
b. Actual earnings
per share for Ford in year 6 were $3.58. Given this information, what would be
the year 7 forecast for earnings per share for each model? Why do the two
models generate quite different forecasts? Which do you think would better
describe earnings per share patterns
Why?
5. ?(45 points) Use the sample templates in Tables 4-1, 4-2,
and 4-3 as a reference to recast the financial statements for Amazon.com below.
Step 1 is to classify the lines appropriately, then step 2 is to aggregate like
items to produce the standardized
Helpful Notes: (a) fulfillment costs â these
are viewed as cost of sales for most retailers; (b) stock option costs â these
are probably for senior management and hence should probably be classified as
SG&A; and (c) in the cash flow statement gains and losses on currency
translations (shown at the end of the statement are shown as operating factors
that imply that cash from operations in the standardized format does not equate
to that reported by the firm.
See Week 4 Discussion forum for example.
Income Statement
Classifications
2002
2001
2000
Net sales
$3,932,936
$3,122,433
$2,761,983
Cost of sales
2,940,318
2,323,875
2,106,206
Gross profit
992,618
798,558
655,777
Operating expenses:
Fulfillment
392,467
374,250
414,509
Marketing
125,383
138,283
179,980
Technology and content
215,617
241,165
269,326
General and administrative
79,049
89,862
108,962
Stock-based compensation
68,927
4,637
24,797
Amortization of goodwill and
other intangibles
5,478
181,033
321,772
Restructuring-related and
other
41,573
181,585
200,311
Total operating expenses
$928,494
$1,210,815
$1,519,657
Income (loss) from operations
64,124
-412,257
-863,880
Interest income
23,687
29,103
40,821
Interest expense
-142,925
-139,232
-130,921
Other income (expense), net
5,623
-1,900
-10,058
Other gains (losses), net
-96,273
-2,141
-142,639
Total non-operating expenses, net
($209,888)
($114,170)
($242,797)
Loss before equity in losses of
equity-method investees
-145,764
-526,427
-1,106,677
Equity in losses of equity-method
investees, net
-4,169
-30,327
-304,596
Loss before change in
accounting principle
($149,933)
($556,754)
($1,411,273)
Cumulative effect of change in
accounting principle
801
-10,523
Net loss
($149,132)
($567,277)
($1,411,273)
Balance Sheet
Classifications
Year
Beginning January 1, ($000’s)
2003
2002
Current assets:
Cash and cash equivalents
$738,254
$540,282
Marketable securities
562,715
456,303
Inventories
202,425
143,722
Accounts receivable, net &
other current assets
112,282
67,613
Total current assets
$1,615,676
$1,207,920
Fixed assets, net
239,398
271,751
Goodwill, net
70,811
45,367
Other intangibles, net
3,460
34,382
Other equity investments
15,442
28,359
Other assets
45,662
49,768
Total assets
$1,990,449
$1,637,547
LIABILITIES AND STOCKHOLDERS’
DEFICIT
Current liabilities:
Accounts payable
618,128
444,748
Accrued expenses and other current
liabilities
314,935
305,064
Unearned revenue
47,916
87,978
Interest payable
71,661
68,632
Current portion of long-term debt
and other
13,318
14,992
Total current liabilities
$1,065,958
$921,414
Long-term debt and other
2,277,305
2,156,133
Shareholdersâ deficit
Common stock, $0.01 par value:
Authorized shares 5,000,000 Issued and outstanding shares — 387,906 and
373,218 shares, respectively
3,879
3,732
Additional paid-in capital
$1,649,946
$1,462,769
Deferred stock-based
compensation
-6,591
-9,853
Accumulated other
comprehensive income (loss)
9,662
-36,070
Accumulated deficit
-3,009,710
-2,860,578
Total stockholders’ deficit
($1,352,814)
($1,440,000)
Total liabilities and
stockholders’ deficit
1,990,449
1,637,547
Cash Flow Statement
Classifications
Year
Ended December 31, ($000’s)
2002
2001
2000
OPERATING ACTIVITIES:
Net loss
($149,132)
($567,277)
($1,411,273)
Adjustments to reconcile net
loss to net cash provided by (used in) operating activities:
Depreciation of fixed assets
and other amortization
82,274
84,709
84,460
Stock-based compensation
68,927
4,637
24,797
Equity in losses of equity-method
investees
4,169
30,327
304,596
Amortization of goodwill and other
intangibles
5,478
181,033
321,772
Non-cash restructuring-related and
other
3,470
73,293
200,311
Gain on sale of marketable securities,
net
-5,700
-1,335
-280
Other losses (gains), net
96,273
2,141
142,639
Non-cash interest expense and other
29,586
26,629
24,766
Cumulative effect of change in
accounting principle
-801
10,523
Changes in operating assets and
liabilities:
Inventories
-51,303
30,628
46,083
Accounts receivable, net and other
cur. assets
-32,948
20,732
-8,585
Accounts payable
156,542
-44,438
22,357
Accrued expenses and other current
liabilities
4,491
50,031
93,967
Unearned revenue
95,404
114,738
97,818
Amortization of previously unearned
revenue
-135,466
-135,808
-108,211
Interest payable
3,027
-345
34,341
Net cash provided by (used in)
operating activities
$174,291
($119,782)
($130,442)
Year Ended December 31,
($000’s)
2002
2001
2000
INVESTING ACTIVITIES:
Sales/maturities of marketable
securities and investments
553,289
370,377
545,724
Purchases of marketable
securities
-635,810
-567,152
-184,455
Purchases of fixed assets,
including internal-use software
-39,163
-50,321
-134,758
Investments (including in
equity-method investees)
-6,198
-62,533
Net cash provided by (used in)
investing activities
($121,684)
($253,294)
$163,978
FINANCING ACTIVITIES:
Proceeds from exercise of stock options and
other
121,689
16,625
44,697
Proceeds from issuance of
common stock, net of issue costs
99,831
Proceeds from long-term debt and other
10,000
681,499
Repayment of capital lease obligations and
other
-14,795
-19,575
-16,927
Financing costs
-16,122
Net cash provided by financing
activities
$106,894
$106,881
$693,147
Effect of exchange-rate changes
on cash and cash equivalents
38,471
-15,958
-37,557
Net increase (decrease) in cash
and cash equivalents
$197,972
($282,153)
$689,126