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Q3. Consider the balance sheet shown below for the Starburst Corporation: ffice ffice" />
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Starburst Corporation Balance Sheet
($ millions) |
|
Assets |
Liabilities & Owners’ Equity |
|
Cash |
$20 |
Accounts payable |
$30 |
|
Marketable securities |
10 |
Notes payable |
10 |
|
Accounts receivable |
40 |
Total current liabilities |
$40 |
|
Inventories |
80 |
|
|
|
Total current assets |
$150 |
Long-term debt |
$120 |
|
|
|
Common stock |
40 |
|
Net property, plant, & equipment (P,P&E) |
$230 |
Retained earnings |
200 |
|
Intangible assets |
20 |
Total stockholders’ equity |
$240 |
|
Total assets |
$400 |
Total liabilities & equity |
$400 |
Footnotes to Starburst’s financial statements include the following information:
- Inventories are valued at cost as determined by the last in, first out (LIFO) method. The LIFO reserve is $10 million.
- Additional operating facilities and equipment are financed with operating leases that have a present value of $20 million.
- Intangible assets represent $4 million of goodwill from previous acquisitions.
- Due to a decrease in interest rates, Starburst’s long-term debt has a current market value of $150 million.
Which of the following is closest to Starburst’s total debt-to-equity ratio after making the necessary balance sheet adjustments?
A) 0.97.
B) 0.64.
C) 0.45.
Correct answer is A)
The adjusted balance sheet is presented below:
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Starburst Corporation
Adjusted Balance Sheet
($ millions) |
|
Assets |
Liabilities & Owners’ Equity |
|
Cash |
$20 |
Accounts payable |
$30 |
|
Marketable securities |
10 |
Notes payable |
10 |
|
Accounts receivable |
40 |
Total current liabilities |
$40 |
|
Inventories |
90 |
|
|
|
Total current assets |
$160 |
Long-term debt |
$170 |
|
|
|
Common stock |
40 |
|
|
|
Equity adjustment |
?24 |
|
Net P,P&E |
$250 |
Retained earnings |
200 |
|
Intangible assets |
16 |
Total stockholders’ equity |
$216 |
|
Total assets |
$426 |
Total liabilities & equity |
$426 |
Asset adjustments:
|
Inventory |
= 80 + 10 |
= $90 million |
(LIFO reserve) |
|
Net P,P&E |
= 230 + 20 |
= $250 million |
(PV of the operating lease) |
|
Intangible assets |
= 20 – 4 |
= $16 million |
(goodwill from past acquisitions) |
Debt adjustments:
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Long term debt |
= $150 million (revaluation due to increased rates) + $20 million leases |
|
|
= $170 million total long term debt |
|
Equity adjustment |
= $10 LIFO reserve ? $4 goodwill ? $30 debt increase due to interest rates |
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= ?$24.0 |
|
|
|
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Adjusted debt-to-equity ratio = (40 + 170) / 216 = 0.9722
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发表于 2009-3-3 12:47
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