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Q5. Nolan Corporation (Nolan) is a successful and publicly-traded ffice:smarttags" />U.S. company that has operated for many years. It manufactures
various sporting goods and in recent years, established three subsidiary companies, Soccer Inc. (Soccer), Hockey Inc.
(Hockey), and Lacrosse Inc. (Lacrosse). Soccer and Hockey are located in the U.S. and Lacrosse is located in Canada.
Given that its stock is widely followed by analysts, Nolan regularly communicates its earnings expectations to the market.
Nolan’s most recent financial statements are provided in Exhibit 1.
Exhibit 1: Consolidated financial statements for Nolan Corporation
|
Income Statement
Year Ended December 31, 2008 (in thousands) |
|
Sales |
$21,500 |
|
Cost of goods sold |
(13,620) |
|
Depreciation expense |
(2,100) |
|
SG&A expense |
(1,750) |
|
Interest expense |
(1,420) |
|
Taxes |
(910) |
|
Net income |
$1,700 |
|
Cash flow Statement
Year Ended December 31, 2008 (in thousands) |
|
Cash from operations |
$1,760 |
|
Cash from investing |
(3,900) |
|
Cash from financing |
1,565 |
|
Change in cash |
$(575) |
Nolan has calculated accrual ratios for its subsidiaries, Soccer and Hockey, in Exhibit 2.
Exhibit 2: Accrual ratios for Soccer and Hockey
|
Accrual Ratio |
2008 |
2007 |
|
Soccer Inc. |
13.5% |
11.4% |
|
Hockey Inc. |
10.7% |
11.2% |
To protect itself from a multitude of business and financial risks, Nolan uses derivatives to manage its risks. It has engaged in several different hedges during the year, including a net investment hedge of a foreign subsidiary, a cash flow hedge, and a fair value hedge.
Which of the following statements best describes the term forecast error?
A) The difference in a firm’s reported earnings and the consensus buy-side earnings forecast.
B) The difference in a firm’s reported earnings and the consensus sell-side earnings forecast.
C) The difference in a firm’s reported earnings and the firm’s internal earnings forecast communicated to the market.
Correct answer is B)
The difference in a firm’s reported earnings and the consensus sell-side earnings forecast is known as forecast error. The consensus sell-side forecast is a benchmark the firm is trying to meet. Firms periodically communicate their earnings expectations to the market in order to move the benchmark.
Q6. Using Nolan’s consolidated balance sheet, which of the following amounts is closest to the accruals ratio for 2008.
A) 15.5%.
B) 16.6%.
C) 14.4%.
Correct answer is C)
The first step is to compute the beginning and ending balances of NOA.
|
|
2008 |
2007 |
|
Total assets |
$31,670 |
$27,745 |
|
Cash |
(1,230) |
(1,805) |
|
Operating assets |
$30,440 |
$25,940 |
|
|
|
|
|
Total liabilities |
$27,166 |
$24,295 |
|
Current portion of long-term debt |
(3,306) |
(3,095) |
|
Long-term debt |
(22,000) |
(20,000) |
|
Operating liabilities |
$1,860 |
$1,200 |
|
|
|
|
Net operating assets |
$28,580 |
$24,740 |
Next, calculate the average NOA for 2008 of $26,660 [($28,580 ROAEND + $24,740 NOABEG) / 2].
Finally, calculate the accruals ratio for 2008: ($28,580 NOAEND ? $24,740 NOABEG) / $26,660 NOAAVG = 14.4%.
Q7. Using Nolan’s consolidated income statement and cash flow statement, which of the following amounts is closest to the
accruals ratio for 2008. (Note: for the purposes of this question, assume that the average NOA is $24,000.)
A) 16.0%.
B) -1.8%.
C) 9.5%.
Correct answer is A)
The relevant equations to consider are as follows:
AccrualsCF = NI ? CFO ? CFI
First, calculate the aggregate accruals as follows:
|
Net income |
$1,700 |
|
Cash from operations |
(1,760) |
|
Cash from investing |
3,900 |
|
Accruals |
$3,840 |
Next, using the average NOA of $24,000, calculate the accruals ratio for 2008: $3,840 Accruals / $24,000 NOAAVG = 16.0%
[此贴子已经被作者于2009-3-3 9:46:17编辑过] | 
发表于 2009-3-3 09:33
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