1.Craig Loomis, a credit analyst with Shawnee Financial Group, has been asked to assess the operational efficiency of Lenexa Company. Loomis calculates the following ratios from data gathered from Lenexa’s annual report: Total debt | $14,500,000 | Revenues | $35,200,000 | Earnings before interest and taxes | $6,125,000 | Depreciation and amortization | $1,675,000 | Interest expense | $2,200,000 |
According to the financial footnotes, Lenexa is a lessee in an operating lease arrangement for manufacturing equipment. The discounted present value of the lease payments is $6,000,000 using an interest rate of 10 percent. The annual payment is $1,000,000. Only considering the above data, determine which ratio best measures operational efficiency and calculate the adjusted measure for the appropriate analytical treatment of the lease.
| Operational efficiency
| Adjusted measure
|
A) EBITDA margin 25.0% B) EBITDA margin 17.4% C) EBITDA / Interest expense 4.0 times D) EBITDA / Interest expense 3.1 times
2.At the end of 2007, Decatur Corporation reported last-in, first-out (LIFO) inventory of $20 million, cost of goods sold (COGS) of $64 million, and inventory purchases of $58 million. If the LIFO reserve was $6 million at the end of 2006 and $16 million at the end of 2007, compute first-in, first-out (FIFO) inventory at the end of 2007 and FIFO COGS for the year ended 2007.
A) $36 million $74 million B) $36 million $54 million C) $26 million $54 million D) $26 million $74 million
3.Falcon Financial Group is considering the purchase of Company A or Company B based on a low price-to-book investment strategy that also considers differences in solvency. Selected financial data for both firms, as of December 31, 20X7, follows: in millions, except per-share data
| Company A | Company B | Current assets | $3,000 | $5,500 | Fixed assets | $5,700 | $5,500 | Total debt | $2,700 | $3,500 | Common equity | $6,000 | $7,500 | Outstanding shares | 500 | 750 | Market price per share | $26.00 | $22.50 |
The firms’ financial statement footnotes contain the following: §
Company A values its inventory using the first-in, first-out (FIFO) method. §
Company B’s inventory is based on the last-in, first-out (LIFO) method. Had Company B used FIFO, its inventory would have been $700 million higher. §
Company A leases its manufacturing plant. The remaining operating lease payments total $1,600 million. Discounted at 10 percent, the present value of the remaining payments is $1,000 million. §
Company B owns its manufacturing plant. To make the firms financials ratios comparable, calculate the adjusted price-to-book ratios for Company A and Company B.
A) $2.17 $2.81 B) $1.63 $2.06 C) $2.17 $2.06 D) $1.63 $2.81
4.Comet Corporation is a capital intensive, growing firm. Comet operates in an inflationary environment and its inventory quantities are stable. Which of the following accounting methods will cause Comet to report a lower price-to-book ratio, all else equal? Inventory method | Depreciation method |
A) First-in, First-out Accelerated B) First-in, First-out Straight-line C) Last-in, First-out Straight-line D) Last-in, First-out Accelerated | 
发表于 2008-5-15 11:26
| 
