财务报表分析（英文版）答案 (5)

Chapter 03 - Analyzing Financing Activities

Problem 3-5—continued

Part c continued:

Summary of Adjustments Ratio Adjusted book value Adjusted debt to equity Fixed-asset utilization

JDS $24.00 75% 3.17

MLS $22.75 38% 3.36

Final Results of Analysis:

Based on Westfield’s investment criteria of investing in companies with low adjusted Price-to-Book and considering the adjusted solvency and asset utilization ratios, MLS is the better purchase candidate. The analysis justification follows: i. ii. iii.

ab

Ratio JDS 2.15 75% 3.17

a

MLS Company favored 2.18 approximately equal

36% MLS – lower adjusted debt to equity 3.36 MLS – higher asset utilization

b

Price to adjusted book Adjusted debt to equity Fixed-asset utilization

$51.50 / $24.00 = 2.15. $49.50 / $22.75 = 2.18.

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Chapter 03 - Analyzing Financing Activities

Problem 3-6 (20 minutes)

a. In the case of environmental liabilities, there are several unknowns that are especially difficult to predict. The unknowns relate to the clean up and to the lawsuits that result from the hazardous waste. Specifically:

? The company cannot predict the timing of an environmental tragedy such as that which occurred in the Union Carbide factory.

? The company doesn’t know if it will be identified as a potentially responsible party in a yet uncovered hazardous waste site. This can include a former site of the company.

? If the company is identified as a potentially responsible party, we do not know the portion of the clean up costs that it will be required to pay.

? The company doesn’t know what costs would be incurred in the actual clean up of the site.

? The company needs to determine which internal costs should be included in the cost of the clean up. For example, if it uses its laborers for site clean up activities, the direct cost of labor can become a part of the overall cost of cleanup.

? The company must guess whether lawsuits will be filed against the company related to the hazardous waste site.

? The company must estimate the probability of loss or settlement in the lawsuit and the amount of the damages to be paid

b. We must factor the possibility of catastrophic environmental loss into the pricing of the company. For some industries, the probability assigned to occurrence might be very small. Thus, we will not assign a large weighting factor. However, in some industries, the base-line probability can be significant. In addition, we will update these probabilities based on additional information. For example, after the Bhopal tragedy, analysts discounted the valuations of key competitors. This indicates that analysts revised their beliefs about the possibility of loss upwards from earlier estimations. In classic valuation models, an analyst can reflect this risk in the discount factor applied to future earnings or future cash flows.

c. Some industries especially predisposed to environmental risks include: oil producers, chemical manufacturers, tobacco producers, insulation manufacturers and distributors, medical firms, bio-tech firms.

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Chapter 03 - Analyzing Financing Activities

Problem 3-7 (30 minutes)

a. The service cost of $22.1 million for Year 11 is the present value of actuarial benefits earned by employees in Year 11.

b. Year 11: Discount rate = 8.75% Year 10: Discount rate = 9.00%

A higher discount rate will lead to a lower present value of service cost. In this case, with the reduction in discount rate from 9% to 8.75%, the service cost is increased.

c. The interest cost is computed by multiplying the projected benefit obligation (PBO) as of the end of the prior year by the discount rate of 8.75%.

d. The actual return on assets in Year 11 is $73.4 million [113]. It consists of investment income plus the realized or unrealized appreciation or depreciation of plan assets during the year. The expected return on plan assets is computed by multiplying the expected long-term rate of return (9%) on plan assets by the market value of plan assets at the beginning of the period or $773.9 million [120]. This means the expected return is $69.65 million (computed as $773.9 x 9%).

The actual return subjects pension cost to more fluctuation from volatility in the financial market—and, accordingly, increasing volatility in the annual pension cost. As a result, expected return is used in determining pension expense. The difference between actual and expected return will be amortized over an appropriate period.

e. Accumulated benefit obligation (ABO) is the employer's obligation to employees' pension based on current and past compensation levels rather than future levels. Therefore, it could amount to the employer's current obligation if the plan were discontinued presently.

f. The projected benefit obligation (PBO) is the employer's obligation to employees' pension based on future compensation level. The difference between PBO and ABO is due to the inclusion of a provision of 5.75% increase in future compensation level by PBO. In Year 11, the difference between PBO and ABO is $113.3 million [120].

g. Yes; indeed, there is prepaid pension expense of $172.5 million in Year 11 [120].

Problem 3-8 (20 minutes)

Periodic pension cost computation ($ millions)

Service Cost ($586 x 1.10) .............................................................................. $645 Interest Cost (PBO x Discount Rate = $2,212 x 0.085) ................................. 188 Return on plan assets ($3,238 x 0.115) ......................................................... (372) Amortization of deferred loss ($48 / 30 years) .............................................. 2 3-48

Chapter 03 - Analyzing Financing Activities

Periodic pension cost .................................................................................... $463 3-49

Chapter 03 - Analyzing Financing Activities

CASES

Case 3-1 (60 minutes)

a. Colgate administers defined benefit plans for substantial majority of its employees. The primary OPEBs provided by Colgate and health care and life insurance benefits. b.

1. The economic positions are follows (in $ millions):

2005 2006

Domestic

(225.6) (188.3)

Pensions

International

(303.0) (315.9)

OPEB

(400.8) (437.4)

Total

(929.4) (941.6)

Negative numbers indicate underfunded status. Colgate’s plans are underfunded and so are net liabilities.

2. The position reported in the balance sheet is as follows ($ million):

2005 2006

Domestic

Pensions

International

(142.2) (315.9)

OPEB

(200.5) (437.4)

Total

(87.8) (941.6)

254.9 (188.3)

Negative/positive numbers indicate liability/asset. Colgate’s postretirement benefit plans are net liabilities on the balance sheet.

3. The amounts are primarily reported as noncurrent liabilities, but also

included in noncurrent assets and current liabilities.

4. In 2005, Colgate reported postretirement benefits under SFAS 87.

This standard reports only accumulated (or prepaid) pension cost on the balance sheet instead of the net economic position (funded status). This causes the divergence.

5. The projected benefit obligation (PBO) and accumulated benefit

obligation (PBO) are as follows ($ million):

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