IFM10 Ch07 Solutions ManualWord格式文档下载.docx

IFM10 Ch07 Solutions ManualWord格式文档下载.docx

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AccountingforFinancialManagement

ANSWERSTOBEGINNING-OF-CHAPTERQUESTIONS

7-1Thebalancesheetshowstheassets,alongwiththesourcesoffundsusedtoacquiretheassets,atapointintime,say12/31/07.Theincomestatementshowsthesalesandprofitsthatwereproducedduringanintervaloftime,saytheyear2007.Anindividualwouldhaveassets,andanetworth,andabalancesheetwoulddetailtheseholdings.Theindividualwouldalsohaveincomeandexpenses,andhisorherincomestatementwoulddetailtheseflows.

Forabusiness,themostimportantnumber—the“bottomline”—isgenerallythoughttobethenetincome.However,thefirm’snetcashflowisalsoquiteimportant,especiallyifonedistrustsmanagementandthinkstheaccountingstatementsmightbemisleading.

7-2a.WorldComunderstatedcosts.Thishadtheeffectofincreasingitsreportedprofitsanditsnetworth.Also,sinceassetswerenotreducedbythecorrectamounts,reportedassetsweretoohigh.Thiscausedthereporteddebtratio（debt/assets）tobetoolow,makingthecompanylookstrongerthanitactuallywas.Enronessentiallytransferredandgotoffitsbooksdebtthatitwasresponsiblefor,alongwithassetsthatwereactuallyworthlessthanhadbeenpaidforthem.Enron“sold”thetransferredassetstoshamcompaniesatinflatedprices,thusallowingittoinflateitsreportedprofits.Sincebothcompanieswereabletoreporthighprofitsandtolookstrongerthantheyactuallywere,theirstockpricesweremuchhigherthantheywouldhavebeenhadproperaccountingbeenused.

b.Whenthedeceptionswererevealed,bothEnron’sandWorldCom’sstockpricescollapsed.Investorsthenbecameworriedthatothercompaniesmighthavebeendoingthesamething（theywere）,sothepricesofotherstocks,includingcompaniesthatwereplayingentirelybytherules,alsofell.

c.Thestockmarketcollapsehadseriouseconomicconsequences.First,companieshadahardtimeraisingnewequitycapital,andthatrestrictedgrowth.Second,individualswhosawtheirportfoliosdeclinewereworriedandthusspentless,andthatputafurtherdragontheeconomy.Ingeneral,astrongeconomyneedsgoodcapitalmarkets,andthatcanoccuronlyifinvestorscanobtaingoodinformationaboutthecompanieswhosesecuritiestheyarebuying.

7-3Inessence,thestatementofcashflowsstripsoutnon-cashchargesthatareshownontheincomestatementandendsupshowingthesurplusordeficitofcashgeneratedduringtheyear.Forexample,depreciationandamortizationchargesreducenetincome,buttheyarenon-cashcharges,sotheyareaddedbackwhenconstructingthestatementofcashflows.Sincecashiswhat’savailabletocompaniestospendorpayouttoinvestors,thecashflowstatementisquiteimportant,especiallyafterEnron.

7-4Netincomeisthereportedafter-taxaccountingprofits,andEPSisnetincomedividedbythenumberofsharesoutstanding.（Ifoptionsareoutstanding,thenumberofsharesusedtofindEPSmaybeadjustedtoreflectEPSafteroptionshavebeenexercised.）EBITDAisoperatingincomebeforeinterest,taxes,depreciation,andamortization.Thisnumberisespeciallyimportanttobanksandothercreditorsbecauseitisanapproximationtothecashflowbeinggeneratedfromoperationsthatisavailabletomakepaymentsondebt.NOPATisnetoperatingprofitaftertaxes.ItisfoundasEBIT（1-T）,anditshowshowmuchafter-taxoperatingprofitthefirmwouldgenerateifithadnodebt.Freecashflowisthecashflowavailabletoinvestorsafterthefirmhaspaiditstaxesandmadeallinvestmentsinfixedassetsandworkingcapitalnecessarytosustainoperationsgoingforward.FCF=（NOPAT+Depreciation）–Grossinvestmentinoperatingassets=NOPAT–Netinvestmentinoperatingassets.MVAisthemarketvalueofthestockminusthebookvalue,anditshowshowmuchvaluemanagementhasaddedsincethefirm’sinception.EVAiseconomicvalueadded,anditisfoundasEVA=EBIT（1-T）–（operatingcapital）（WACC）.EVAshowshowmuchmanagementhasaddedtothefirm’svaluethroughoperationsduringaspecificyear.MVAissometimesusedtomeasuremanagement’sperformanceandasabasisforlong-runcompensationtothetopmanagers.EVAcanbemeasuredonadivisionalbasis,anditisusedasabasisforannualincentivecompensationplans.

7-5Regularaccountingstatementsreportedthecombinedresultsgeneratedfromoperatingandnon-operatingassets（suchasmarketablesecurityholdings）,andcashandnon-cashitemsaremixed.Managementisinterestedinseparatingoutoperatingresults,andincashflowsaswellasaccountingincome.So,theaccountingstatementsaremodifiedtoproduceinformationthatismoreusefultomanagers.

7-6Freecashflowshowsthecashthatisavailabletoinvestors.Someofthecashisgeneratedbynormaloperations—sellingitemsatpricesgreaterthancost—butsomemayalsobegeneratedbyreducingassets.Also,firmsnormallyhavetoincreasetheirassetsiftheyaregrowing,andthisrequiredinvestmentisdeductedtofindFCF.

7-7a.Interestisdeductibletothecorporatepayer,butdividendpaymentsarenotdeductible.Thisleadstoabiastowarddebtfinancingbybusinesses.Individualinvestorsmustpaytaxesoneitherinterestordividends.So,thereisadoubletaxationofdividendincome（thecompanypaystaxes,andtheninvestorspaytaxesonalready-taxedincomedistributedasdividends）.PresidentBush,inearly2003,proposedamajorchangeinthetaxlawsthatwouldexemptdividendsreceivedfromtaxes.Thisproposalissupportedbymany,becauseitwouldeliminatethebiasinfavorofdebtfinancing.（Mostothernationsalreadyexemptdividendsfromtaxation.）However,itisopposedbymanyotherswhoarguethatit’sa“taxbreakforthewealthy”becausetheyownmostofthestocksandreceivemostofthedividends.

b.Dividendsaretaxed（currently,beforetheproposedchange）atregulartaxrates,whereascapitalgainsaretaxedatlowerrates（amaximumof20%forsomeoneinthe38%taxbracket）.Thisleadstoabiasonthepartofcorporationstoretainearningsandusethecashtorepurchasestock,thusloweringstockholderstaxes.PresidentBush’sproposedtaxchangealsoincludesarathercomplicatedprovisionthatwouldexemptcapitalgainsthatarisefromretainedearningsfromthecapitalgainstax,forwithoutthisprovisiontaxeswouldgivecorporationsincentivetopayoutalloftheirearningsasdividendsratherthanretainsomeearningstosupportgrowth.Eliminationofthetaxondividendswould,ofcourse,encourageinvestorstoshiftfundsfrombondstostocks.

7-8a.Loweringpersonaltaxrateswouldleaveinvestorswithmoredisposableincome,whichcouldbespenttostimulatetheeconomy.Also,recognizethatsmallbusinessincomeisgenerallytaxedaspersonalincometotheowners,soloweringpersonaltaxrateswouldleavemorecashtoinvestinthebusinesses,thusstimulatingtheeconomy.Loweringcorporatetaxrateswouldleavemoreincometoinvestorpayout,bothofwhichwouldstimulatetheeconomy.Also,alowertaxratewouldmakecapitalbudgetingprojectslookbetterbecauseafter-taxcashflowswouldbeincreased.However,theafter-taxcostofdebtwouldincreaseasaresultofthelowerT,butthatwouldbeasecond-ordereffect.

Reducingtaxes,ifnotaccompaniedbyasharplygrowingeconomyand/orareductionofgovernmentspending,wouldincreasethefederaldeficit,andthatcoulddriveupinflationandthusinterestrates.

b.Depreciationschedulescouldbechanged（towardshorterdepreciablelives,orfasterearly-yearswrite-offs）soastoincreasecashflows.ThiswouldincreaseFCFandthusstimulatebusinessinvestmentandthushelptheeconomy.Again,thismightincreasethefederaldeficitandthusincreaseinflationandinterestrates.

c.Asindicatedabove,ourcurrenttaxsystemcreatesabiastowarddebtfinancing.PresidentBush’sproposaltochangethedividendtaxsituationwouldeliminatethisbiasandpresumablyleadtogreateruseofequityfinancing.Ofcourse,theproposalwouldalsoputmoremoneyinthehandsofinvestors,whowouldsurelyspendsomeofitandthusstimulatetheeconomy.Astrongereconomywouldprobablyleadtosomewhathigher（butnotnecessarilyexcessive）interestrates.

ANSWERSTOEND-OF-CHAPTERQUESTIONS

7-1a.Theannualreportisareportissuedannuallybyacorporationtoitsstockholders.Itcontainsbasicfinancialstatements,aswellasmanagement’sopinionofthepastyear’soperationsandthefirm’sfutureprospects.Afirm’sbalancesheetisastatementofthefirm’sfinancialpositionataspecificpointintime.Itspecificallyliststhefirm’sassetsontheleft-handsideofthebalancesheet,whiletheright-handsideshowsitsliabilitiesandequity,ortheclaimsagainsttheseassets.Anincomestatementisastatementsummarizingthefirm’srevenuesandexpensesoveranaccountingperiod.Netsalesareshownatthetopofeachstatement,afterwhichvariouscosts,includingincometaxes,aresubtractedtoobtainthenetincomeavailabletocommonstockholders.Thebottomofthestatementreportsearningsanddividendspershare.

b.CommonStockholders’Equity（NetWorth）isthecapitalsuppliedbycommonstockholders--capitalstock,paid-incapital,retainedearnings,and,occasionally,certainreserves.Paid-incapitalisthedifferencebetweenthestock’sparvalueandwhatstockholderspaidwhentheyboughtnewlyissuedshares.Retainedearningsistheportionofthefirm’searningsthathavebeensavedratherthanpaidoutasdividends.

c.Thestatementofretainedearningsshowshowmuchofthefirm’searningswereretainedinthebusinessratherthanpaidout