CBE 20. The following information is from financial statements (in millions of d

Question

CBE 20. The following information is from financial statements (in millions of dollars Total assets 150S Net financial assets 90 financial obligations 15S common equity 75S What was the value of the operating assets? A. 45 B. 60 C. 75 D. 135 21.At the end of the fiscal year ending June 30, 2003, Microsot equity of $64.9 billion on its balance sheet, with $4 assets (in the form of cash equivalents and short term investmentancial debt. For fiscal year 2004, the firm reported S7.4 billio of which $1.1 billion was after-tax earnings on the financial assets. This month Microsoft is distributing $34 billion of financial assets to shareholders in the of a special dividend. 9.0 billion invested in and no financing n in comprehensive income, form a. Calculate Microsoft's return on common equity (ROCE) for 2004. Holding all else constant what would Microsoft's ROCE be S34 billion? after the payout of b.

Explanation / Answer

PART-1) Solution: 75

Working: Net financial assets minus Financial obligation = 90-15 = 75

PART-2)

1) Solution: 11.40%

Working:

return on common equity = 7.4 /6.9 = 11.40%

2) Solution:

Income statement after payout

Working

Operating income

6.3

Operating income (7.4 -1.1=6.3)

NFI

0.34

NFI [(49-34) * 0.0224 = 0.34]

Comp. income

6.64

ROR = 1.1/49 = 0.0224

CSE = 64.9 – 34.0 = 30.9

30.9

CSE = 64.9 – 34.0 = 30.9

ROCE = 6.64/30.9 = 21.49%

21.49%

ROCE = 6.64/30.9 = 21.49%

New FLEV of is (0.485)

-0.485

ROCE

21.49%

ROCE = 39.62 (-0.485 * (39.62 - 2.24))

Income statement after payout

Working

Operating income

6.3

Operating income (7.4 -1.1=6.3)

NFI

0.34

NFI [(49-34) * 0.0224 = 0.34]

Comp. income

6.64

ROR = 1.1/49 = 0.0224

CSE = 64.9 – 34.0 = 30.9

30.9

CSE = 64.9 – 34.0 = 30.9

ROCE = 6.64/30.9 = 21.49%

21.49%

ROCE = 6.64/30.9 = 21.49%

New FLEV of is (0.485)

-0.485

ROCE

21.49%

ROCE = 39.62 (-0.485 * (39.62 - 2.24))

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