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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 NOA_END ? $24,740 NOA_BEG) / $26,660 NOA_AVG = 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:

Accruals^CF = 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]