Corporate finance (berk/demarzo)- chapter 2 – introduction to

 

Connect with a professional writer in 5 simple steps

Please provide as many details about your writing struggle as possible

Academic level of your paper

Type of Paper

When is it due?

How many pages is this assigment?

Corporate Finance (Berk/DeMarzo)- Chapter 2 Introduction to Financial Statement Analysis

 

 

2.1 The Disclosure of Financial Information

U.S. public companies are required to file their annual financial statements with the U.S. Securities and Exchange Commission on which form?

 

Which of the following is not a financial statement that every public company is required to produce?

Statement of Sources and Uses of Cash

Statement of Stockholders’ Equity

 

The third party who checks  annual financial statements to ensure that they are prepared according to GAAP and verifies that the information reported is reliable is the

Accounting Standards Board.

Securities and Exchange Commission (SEC).

Which of the following balance sheet equations is incorrect?

Assets Liabilities = Shareholders’  Equity

Assets = Liabilities + Shareholders’ Equity

Assets Current Liabilities = Long Term Liabilities

Assets Current Liabilities = Long Term Liabilities + Shareholders’ Equity

 

 

A 30 year mortgage loan is a

 

Which of the following statements regarding the balance sheet is incorrect?

The balance sheet provides a snapshots of the firm’s financial position at a given point in time.

The balance sheet lists the firm’s assets and liabilities.

The balance sheet reports stockholders’ equity on the right hand side.

The balance sheet reports liabilities on the left hand side.

 

Use the table for the question(s) below.

 

Consider the following balance sheet:

 

Luther Corporation

Consolidated Balance Sheet

December 31, 2006 and 2005 (in $ millions)

 

Assets

2006

2005

 

Liabilities and Stockholders’ Equity

2006

2005

Current Assets

 

 

 

Current Liabilities

 

 

Cash

63.6

58.5

 

Accounts payable

87.6

73.5

Accounts receivable

55.5

39.6

 

Notes payable /

shortterm debt

10.5

9.6

Inventories

45.9

42.9

 

Current maturities of longterm debt

39.9

36.9

Other current assets

6.0

3.0

 

Other current liabilities

6.0

12.0

     Total current assets

171.0

144.0

 

     Total current liabilities

144.0

132.0

 

 

 

 

 

 

 

LongTerm Assets

 

 

 

LongTerm Liabilities

 

 

  Land

66.6

62.1

 

  Longterm debt

239.7

168.9

  Buildings

109.5

91.5

 

  Capital lease obligationss

  Equipment

119.1

99.6

 

Total Debt

239.7

168.9

  Less accumulated

  depreciation

(56.1)

(52.5)

 

Deferred taxes

22.8

22.2

Net property, plant, and equipment

239.1

200.7

 

Other longterm liabilities

Goodwill

60.0

 

Total longterm liabilities

262.5

191.1

Other longterm assets

63.0

42.0

 

Total liabilities

406.5

323.1

     Total longterm assets

362.1

242.7

 

Stockholders’ Equity

126.6

63.6

 

 

 

 

 

 

 

Total Assets

533.1

386.7

 

Total liabilities and Stockholders’ Equity

533.1

386.7

 

What is Luther’s net working capital in 2005?

 

If in 2006 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share, then Luther’s Markettobook ratio would be closest to:

 

When using the book value of equity, the debt to equity ratio for Luther in 2006 is closest to:

 

If in 2006 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share, then using the market value of equity, the debt to equity ratio for Luther in 2006 is closest to:

If in 2006 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share, then what is Luther’s Enterprise Value?

 

Luther’s current ratio for 2006 is closest to:

 

If on December 31, 2005  Luther has 8 million shares outstanding trading at $15 per share., then what is Luther’s enterprise value?

 

2.3 The Income Statement

Which of the following statements regarding the income statement is incorrect?

The income statement shows the earnings and expenses at a given point in time.

The income statement shows the flow of earnings and expenses generated by the firm between two dates.

The last or “bottom” line of the income statement shows the firm’s net income.

The first line of an income statement lists the revenues from the sales of products or services.

 

Gross profit is calculated as

Total sales cost of sales selling, general and administrative expenses depreciation and amortization

Total sales cost of sales selling, general and administrative expenses

Total sales cost of sales

 

Which of the following is not an operating expense?

Depreciation and amortization

Selling, general and administrative expenses

 

Use the table for the question(s) below.

 

Consider the following income statement and other information:

 

Luther Corporation

Consolidated Income Statement

Year ended December 31 (in $ millions)

 

2006

2005

Total sales

610.1

578.3

Cost of sales

(500.2)

(481.9)

Gross profit

109.9

96.4

Selling, general, and

administrative expenses

(40.5)

(39.0)

Research and development

(24.6)

(22.8)

Depreciation and amortization

(3.6)

(3.3)

Operating income

41.2

31.3

Other income

Earnings before interest and taxes (EBIT)

41.2

31.3

Interest income (expense)

(25.1)

(15.8)

Pretax income

16.1

15.5

Taxes

(5.5)

(5.3)

Net income

10.6

10.2

 

 

 

Price per share

$16

$15

Shares outstanding (millions)

10.2

8.0

Stock options outstanding (millions)

0.3

0.2

 

 

 

Stockholders’ Equity

126.6

63.6

Total Liabilities and Stockholders’ Equity

533.1

386.7

 

For the year ending December 31, 2006 Luther’s earnings per share are closest to:

Luther’s Operating Margin for the year ending December 31, 2005 is closest to:

 

Luther’s Net Profit Margin for the year ending December 31, 2005 is closest to:

Luther’s earnings before interest, taxes, depreciation, and amortization (EBITDA) for the year ending December 31, 2006 is closest to:

 

Luther’s return on equity (ROE) for the year ending December 31, 2006 is closest to:

 

Luther’s return on assets (ROA) for the year ending December 31, 2006 is closest to:

Luther’s price earnings ration (P/E) for the year ending December 31, 2006 is closest to:

2.4 The Statement of Cash Flows

Which of the following is not a section on the cash flow statement?

Income generating activities

Which of the following is not a reason why cash flow may not equal net income?

Amortization is added in when calculating net income.

Changes in inventory will change cash flows but not income.

Capital expenditures are not recorded on the income statement.

Depreciation is deducted when calculating net income.  

 

Use the tables for the question(s) below.

 

Consider the following financial information:

 

Luther Corporation

Consolidated Balance Sheet

December 31, 2006 and 2005 (in $ millions)

Assets

2006

2005

 

Liabilities and Stockholders’ Equity

2006

2005

Current Assets

 

 

 

Current Liabilities

 

 

Cash

63.6

58.5

 

Accounts payable

87.6

73.5

Accounts receivable

55.5

39.6

 

Notes payable /

shortterm debt

10.5

9.6

Inventories

45.9

42.9

 

Current maturities of longterm debt

39.9

36.9

Other current assets

6.0

3.0

 

Other current liabilities

6.0

12.0

     Total current assets

171.0

144.0

 

     Total current liabilities

144.0

132.0

 

 

 

 

 

 

 

LongTerm Assets

 

 

 

LongTerm Liabilities

 

 

  Land

66.6

62.1

 

  Longterm debt

239.7

168.9

  Buildings

109.5

91.5

 

  Capital lease obligationss

  Equipment

119.1

99.6

 

Total Debt

239.7

168.9

  Less accumulated

  depreciation

(56.1)

(52.5)

 

Deferred taxes

22.8

22.2

Net property, plant, and equipment

239.1

200.7

 

Other longterm liabilities

Goodwill

60.0

 

Total longterm liabilities

262.5

 

Other longterm assets

63.0

42.0

 

Total liabilities

406.5

323.1

     Total longterm assets

362.1

242.7

 

Stockholders’ Equity

126.6

63.6

 

 

 

 

 

 

 

Total Assets

533.1

386.7

 

Total liabilities and Stockholders’ Equity

533.1

386.7

 


 

Luther Corporation

Consolidated Income Statement

Year ended December 31 (in $ millions)

 

2006

2005

Total sales

610.1

578.3

Cost of sales

(500.2)

(481.9)

Gross profit

109.9

96.4

Selling, general, and

administrative expenses

(40.5)

(39.0)

Research and development

(24.6)

(22.8)

Depreciation and amortization

(3.6)

(3.3)

Operating income

41.2

31.3

Other income

Earnings before interest and taxes (EBIT)

41.2

31.3

Interest income (expense)

(25.1)

(15.8)

Pretax income

16.1

15.5

Taxes

(5.5)

(5.3)

Net income

10.6

10.2

Dividends Paid

                 5.1

5.0

Price per Share

$16

$15

Shares outstanding (millions)

10.2

8.0

Stock options outstanding (millions)

0.3

0.2

 

 

 

Stockholders’ Equity

126.6

63.6

Total Liabilities and Stockholders’ Equity

533.1

386.7

 

For the year ending December 31, 2006 Luther’s cash flow from operating activities is ? 

 

2.6 Accounting Manipulation

In response to corporate scandals such as Enron and WorldCom, in 2002 congress passed a law that requires, among other things, that CEOs and CFOs certify the accuracy and appropriateness of their firm’s financial statements and increases he penalties against them if the financial statements later prove to be fraudulent.  The name of this act is?

The Accuracy in Accounting Act

The McCainFeingold Act