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Posted: February 8th, 2019

MSAF 670 Final Exam – Spring 2015

Student
Name: ________________
MSAF 670 Final Exam –
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 company’s 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
company’s marginal tax rate during the three years was 35%.
What adjustments are required to correct Bristol-Myers
Squibb’s balance sheet for December 31,
2001? What assumptions underlie your adjustments? How would you expect the
adjustments to affect Bristol-Myers Squibb’s 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 Lufthansa’s 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 – these
are viewed as cost of sales for most retailers; (b) stock option costs – 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

Shareholders’ 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

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