Idea Transcript
B8110 PRACTICE EXERCISE SET 3 Solution
Exercise 1 Analysis of an Income Statement (a)
Net sales Operating expenses Plus pension returns Core income from sales Tax as reported Tax benefit of debt Tax on other core income Tax on unusual items Core income from sales (after tax)
Other core income: Pension returns Tax @37% Core operating income Unusual items (non-core) Gain on asset sales Restructuring charge Tax @37% Operating income Net financial expense: Interest expense Interest income Tax at 37% Net income (b)
20,367 17,484 1,230 1,606 91 (455.1) (377)
1,230 455.1
1,083 65 1,018 377
363 118 245 91
Tax on operating income from sales Tax on other core income
Core operating income before tax = 1,653 + 1,230 = 2,883 Effective tax rate = 1,320/2,883 = 45.8%
18,714 1,653
864.9 788.1
774.9 1,563
641 2,204
154 2,050 864.9 455.1 1,320.0
Exercise Set 2
Forecasting Cash Flow and Net Indebtedness
Setting up financial statements: Balance Sheet 2008 NOA NFO CSE
Income Statement 2009
500 300 200
OI NFE Earnings
Balance Sheet 2009
55 15 40
Earnings2009 =
200 x 20% = 40
OI2009
=
40 + 15 = 55
NOA2009
=
500 x 1.06 = 530
CSE2009
=
200 + 40 – 20 = 220
NFO2009
=
530 – 220 = 310
(a)
RNOA2009 =
55/500 = 11.0%
(b)
C – I = OI - ΔNOA = 55 – (530 – 500) = 25
(c)
NFO2009 = 530 – 220 = 310
NOA NFO CSE
(as above)
Also, NFO2009 = NFO2008 + NFE – (C – I) + d = 300 + 15 – 25 + 20 = 310 (d)
FLEV2008 = 300/200 = 1.5 FLEV2009 = 310/220 = 1.409
Note that the financing leverage equation works: ROCE = RNOA + [FLEV x (RNOA – NBC)] = 11% + [1.5 x (11% - 5%)] = 20%
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530 310 220
Exercise Set 3
Challenging the Share Price of Cisco Systems, Inc.
The reformulated Statements: Income Statement 2009 Sales Cost of goods sold Other operating expenses Tax reported Tax on net interest Core operating income after tax
1,559 181
Net interest income Tax @ 36.3% Comprehensive income
499 181
Balance Sheet 2009 13,941 24,706 38,647
NOA NFA CSE Average NOA Average NFA Average CSE
36,117 13,023 15,900 7,194 1,378 5,816
318 6,134
2008 15,011 19,342 34,353
14,476 22,024 36,500
(a) ROCE = 6,134 / 36,500 = 16.81% RNOA = 5,816 / 14,476 = 40.18% = Core RNOA RNFA = 318 / 22,024 = 1.44% (b) C – I = OI – ΔNOA = 5,816 – (13,941 – 15,011) = 6,886 (c) Core operating PM = 5,816 / 36,117 = 16.10% ATO = 36,117 / 14,476 = 2.495 Core RNOA = 16.10% x 2.495 = 40.18% (d) Operating income2010
ReOI2010
= NOA2009 x Core RNOA2009 = 13,941 x 0.4018 = 5,601.5 = 5,601.5 – (0.10 x 13,941) = 4,207.4 3
(e) Market value = $22.01 x 5,785 million shares = $127,328 million Reverse engineer:
g = 1.0526
(5.26% growth rate)
NOA NOA (f) Expected return x RNOA 1 x(g - 1) PNOA PNOA Enterprise price = Equity price – Net financial assets = $127,328 – 24,706 = $102,622 million
NOA 13,941 Enterprise book - to - price 0.136 PNOA 102,622 Expected return with 4% growth rate 0.136 x 40.18% [0.864 x 4%] 5.464% 3.456% 8.92% (g) Option value
= $4.42 x 1,004 million options = $4,437.7 million
Tax @36.3%
= 1,610.9
Option overhang
= $2,826.9 million
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