(1) Because a firm that uses debt can be as profitable as a firm that does...
(1) Because a firm that uses debt can be as profitable as a firm that does not, some financial ratios are calculated with NOPAT (Net Operating Profit After Tax) rather than with net income.
(2) Free Cash Flow to the Firm measures the cash available to equity investors, after all debt payments (including interest and principal), have been made.
(3) For Company T during 2017, the change in accounts receivable was positive, the change in inventories was positive, and there was no change in accounts payable. Therefore the change in working capital was a cash inflow. Is this last statement true or false?
(4) The Price-to-earnings ratio (PE ratio) is useful as an indicator of liquidity because it relates the earnings of a company to its stock price.
(5) In consolidated accounts, when the parent company pays more for the shares of a subsidiary than book value, the difference is positive goodwill
Homework Answers
| (1) Because a firm that uses debt can be as profitable as a firm that does not, some financial ratios are calculated with NOPAT (Net Operating Profit After Tax) rather than with net income. |
| TRUE-- when taking investment decisions, it gives the potential investor, a clear picture about the company's efficiency in core operational areas, as NOPAT does not include debt-servicing or interest charges. |
| (2) Free Cash Flow to the Firm measures the cash available to equity investors, after all debt payments (including interest and principal), have been made. |
| FALSE-- |
| FCFF=Cash from Operations-CAPEX |
| ie.FCFF=(EBIT*(1-Tax Rate)+/-Non-cash charges+/-Changes to Working Capital)- Capital expenditure |
| whereas , |
| FCFE=After-tax Net Income+/-Changes to Working capital+/-Changes to Debt |
| So, FCFF measures cash availability to both equity & debt/bond holders. |
| Unlike FCFE , FCFF does not exclude debt payments (including interest & principal) |
| (3) For Company T during 2017, the change in accounts receivable was positive, the change in inventories was positive, and there was no change in accounts payable. Therefore the change in working capital was a cash inflow. Is this last statement true or false? |
| FALSE-- |
| Change in receivables & inventories is POSITIVE--means additions to current assets, meaning cash is either not received(in case of accounts receivables) or cash is spent(purchase of inventories). |
| So, in both cases, the change in working capital ,is a cash outflow and not a cash inflow. |
| (4) The Price-to-earnings ratio (PE ratio) is useful as an indicator of liquidity because it relates the earnings of a company to its stock price. |
| FALSE-- |
| P/E ratio is an indicator of how much the market or a potential investor, will be willing to pay , considering the earnings of the company and also after studying the financial statements of the company. |
| It does not tell anything about the liquidity which means the capability of the company to meet its less-than-a year obligations . |
| (5) In consolidated accounts, when the parent company pays more for the shares of a subsidiary than book value, the difference is positive goodwill |
| TRUE |
| Goodwill=Fair value of net assets-Book Value of net assets |
| where net assets=Assets taken over -Liabilities accepted |
Add Answer to:
(1) Because a firm that uses debt can be as profitable as a firm
that does...
(5) Because a firm that uses debt can be as profitable as a firm that does...
(5) Because a firm that uses debt can be as profitable as a firm that does not, some financial ratios are calculated t with NOPAT (Net Operating Profit After Tax) rather than with net income. [7 marks] [1] True or False? (42 points) (6) In ROC (return on capital) calculations, if the operating earnings corresponds to profits obtained during 2017, then the debt and equity values must be at end of 2017. [7 marks] (7) ROA (return on assets) ca...
TRUE OR FALSE For company b, the receivables turnover ratio decreased in 2017 with respect to...
TRUE OR FALSE For company b, the receivables turnover ratio decreased in 2017 with respect to 2016. Therefore, its average collection period increased in that period. Net interest margin is defined as interest income minus cost of funding. The Price-to-earnings ratio (PE ratio) is useful as an indicator of debt, because it relates the earnings of a company to its stock price Because a firm that uses debt can be as profitable as a firm that does not, some financial...
Determining ending balances of accounts on the consolidated balance sheet Assume that the parent company acquires...
Determining ending balances of accounts on the consolidated balance sheet Assume that the parent company acquires its subsidiary by exchanging 55,000 shares of its Common Stock, with a market value on the acquisition date of $40 per share, for all of the outstanding voting shares of the investee. In its analysis of the investee company, the parent values all of the subsidiary's assets and liabilities at an amount equaling their book values except for a building that it feels is...
Inferring consolidation entries from consolidated financial statements-Cost method Assume a paren...
Inferring consolidation entries from consolidated financial statements-Cost method Assume a parent company acquired a subsidiary on January 1, 2012. The purchase price was $1,362,000 in excess of the subsidiary's book value of Stockholders' Equity on the acquisition date, and that excess was assigned to the following [A] assets [A] Asset Property, plant and equipment (PPE), net Patent Goodwill Original Amount Original Useful Life 20 years 12 years Indefinite $300,000 432,000 630,000 $1,362,000 The parent company uses the cost method of...
Assume that on 1/1/X0, a parent company acquires a 70% interest in its subsidiary for a price at ...
Assume that on 1/1/X0, a parent company acquires a 70% interest
in its subsidiary for a price at $480,000 over book value. The
excess is assigned as follows:
Asset
Fair Value
Useful Life
Patent
$320,000
8 years
Goodwill
160,000
Indefinite
70% of the goodwill is allocated to the parent.
Included in the attached Excel spreadsheet are the
pre-consolidation financial statements for both the parent and the
subsidiary.
Submission Requirements:
Prepare the consolidated financial statements at 12/31/X6 by
placing the appropriate...
Determining ending balances of accounts on the consolidated balance sheet Assume that the parent company acquires...
Determining ending balances of accounts on the consolidated balance sheet Assume that the parent company acquires its subsidiary by exchanging 82,500 shares of its Common Stock, with a market value on the acquisition date of $40 per share, for all of the outstanding voting shares of the investee. In its analysis of the investee company, the parent values all of the subsidiary's assets and liabilities at an amount equaling their book values except for a building that it feels is...
Inferring consolidation entries from consolidated financial statements—Cost method Assume a parent company acquired a subsidiary on...
Inferring consolidation entries from consolidated financial statements—Cost method Assume a parent company acquired a subsidiary on January 1, 2012. The purchase price was $1,312,000 in excess of the subsidiary’s book value of Stockholders’ Equity on the acquisition date, and that excess was assigned to the following [A] assets: [A] Asset Original Amount Original Useful Life Property, plant and equipment (PPE), net $300,000 20 years Patent 432,000 12 years Goodwill 580,000 Indefinite $1,312,000 The parent company uses the cost method of...
Determining ending consolidated balances in the second year following the acquisition—Equity method Assume a parent company...
Determining ending consolidated balances in the second
year following the acquisition—Equity
method
Assume a parent company acquired a subsidiary on January 1,
2015. The purchase price was $745,000
in excess of the subsidiary’s book value of Stockholders’ Equity
on the acquisition date, and that excess
was assigned to the following [A] assets:
37. Determining euding consolidated balances in the second year following the acquisition-Equity method Assume a parent company acquired a subsidiary on January 1, 2015. The purchase price was...
Parent acquired Subsidiary on January 1, 2020 at a price $450,000 in excess of book value....
Parent acquired Subsidiary on January 1, 2020 at a price $450,000 in excess of book value. Of that excess, $350,000 was allocated to an unrecorded patent with a 10-year life, with the remainder to goodwill. The Subsidiary’s retained earnings balance on the date of acquisition was $1,379,650. The Parent uses the cost method to account for its investment in the Subsidiary. In 2021, Subsidiary sold to Parent land having a book value of $90,000 for a total price of $244,000....
3. Consolidated Balances (35 points) Parent Company acquires a subsidiary by issuing 100,000 common shares with...
3. Consolidated Balances (35 points) Parent Company acquires a subsidiary by issuing 100,000 common shares with a market value of $25 per share for all of the subsidiary's common stock. The subsidiary's assets and liabilities were recorded at fair values with the exception of equipment undervalued by $225,000. In addition, there were two unrecorded assets: a trademark valued at $175,000 and a customer list valued by the subsidiary at $60,000. The balance sheets of the parent and subsidiary immediately after...
Determining ending balances of accounts on the consolidated balance sheet Assume that the parent company acquires its subsidiary by exchanging 55,000 shares of its Common Stock, with a market value on the acquisition date of $40 per share, for all of the outstanding voting shares of the investee. In its analysis of the investee company, the parent values all of the subsidiary's assets and liabilities at an amount equaling their book values except for a building that it feels is...
Inferring consolidation entries from consolidated financial statements-Cost method Assume a parent company acquired a subsidiary on January 1, 2012. The purchase price was $1,362,000 in excess of the subsidiary's book value of Stockholders' Equity on the acquisition date, and that excess was assigned to the following [A] assets [A] Asset Property, plant and equipment (PPE), net Patent Goodwill Original Amount Original Useful Life 20 years 12 years Indefinite $300,000 432,000 630,000 $1,362,000 The parent company uses the cost method of...
Assume that on 1/1/X0, a parent company acquires a 70% interest
in its subsidiary for a price at $480,000 over book value. The
excess is assigned as follows:
Asset
Fair Value
Useful Life
Patent
$320,000
8 years
Goodwill
160,000
Indefinite
70% of the goodwill is allocated to the parent.
Included in the attached Excel spreadsheet are the
pre-consolidation financial statements for both the parent and the
subsidiary.
Submission Requirements:
Prepare the consolidated financial statements at 12/31/X6 by
placing the appropriate...
Determining ending balances of accounts on the consolidated balance sheet Assume that the parent company acquires its subsidiary by exchanging 82,500 shares of its Common Stock, with a market value on the acquisition date of $40 per share, for all of the outstanding voting shares of the investee. In its analysis of the investee company, the parent values all of the subsidiary's assets and liabilities at an amount equaling their book values except for a building that it feels is...
Determining ending consolidated balances in the second
year following the acquisition—Equity
method
Assume a parent company acquired a subsidiary on January 1,
2015. The purchase price was $745,000
in excess of the subsidiary’s book value of Stockholders’ Equity
on the acquisition date, and that excess
was assigned to the following [A] assets:
37. Determining euding consolidated balances in the second year following the acquisition-Equity method Assume a parent company acquired a subsidiary on January 1, 2015. The purchase price was...
3. Consolidated Balances (35 points) Parent Company acquires a subsidiary by issuing 100,000 common shares with a market value of $25 per share for all of the subsidiary's common stock. The subsidiary's assets and liabilities were recorded at fair values with the exception of equipment undervalued by $225,000. In addition, there were two unrecorded assets: a trademark valued at $175,000 and a customer list valued by the subsidiary at $60,000. The balance sheets of the parent and subsidiary immediately after...
Most questions answered within 3 hours.
-
If you titrated 30.0 mL of 0.1 M HCl with 0.1 M NaOH, indicate
the approximate...
asked 1 minute ago -
NADH passes electrons into the electron transport chain. List
the carriers that would receive the electrons,...
asked 9 minutes ago -
A cylindrical cable with a resistivity of 1.6x10-8 Ω·m and cross
sectional area of 3x10-5 m^2...
asked 9 minutes ago -
True or False.
A consumer with convex preferences who is indifferent between
the bundles (5,2) and...
asked 13 minutes ago -
A diamond's index of refraction for red light, 656 nm, is 2.410,
while that for blue...
asked 26 minutes ago -
Compare HPLC, SPE, and GC. Identify the differences, the
advantages, and the weaknesses of each method.
asked 27 minutes ago -
Characteristic x-rays emitted by potassium have a wavelength of
0.374 nm. What is the energy of...
asked 29 minutes ago -
there is a function to create two random numbers between 1 and
25 and a function...
asked 47 minutes ago -
At a certain temperature, the ?pKp for the decomposition of
H2SH2S is 0.832.0.832.
H2S(g)↽−−⇀H2(g)+S(g)H2S(g)↽−−⇀H2(g)+S(g)
Initially, only...
asked 41 minutes ago -
Part 1.C&A Fast Food has four activities in serving a
customer: greet customer, take order, process...
asked 47 minutes ago -
Which attribute allows you to specify a custom "thumbnail" for
multimedia elements?
asked 1 hour ago -
How much 0.1200 M sodium hydroxide solution is need to titrate
14 mL of a 0.100...
asked 1 hour ago