FSA 3321 – Summer 2010
Exam 3
Moore
Third Examination – Finance 3321
Summer 2010 (Moore)
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Use the Financial Statements for Tootsie Roll at the end of the exam booklet to answer the following
10 questions (no partial credit) – clearly show all inputs to be eligible for credit. Numerical answers
must be taken to 2 decimal places (e.g. 25.42) and percentage based answers must be taken to the
tenth of a percent (e.g. 36.4%). Show all work.
1. Compute the Days Supply of Inventory at the end 2007.
2. Compute the Current Ratio for 2008.
3. Compute the Working Capital Turnover for 2009.
4. Compute the Times Interest Earned for 2008.
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FSA 3321 – Summer 2010
Exam 3
Moore
5. Compute the Accounts Receivable Turnover for 2007.
6. Compute the Operating Profit Margin for 2009.
7. Compute the Asset TurnoverRatio for 2008.
8. Compute the Debt Service Margin for 2008.
9. Compute the Sustainable Growth Rate for 2009.
10. Compute the Cash to Cash Cycle for 2008.
11. Within the context of forecasting, which of the following ratios best links the income statement to
the balance sheet?
a. Net profit margin
b. Current Ratio
c. Return on Equity
d. Asset Turnover
e. Day’s Sales outstanding
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FSA 3321 – Summer 2010
Exam 3
Moore
Use the following information (assumptions) to provide forecasts for Tootsie Roll in problems 12-15.
Assume a forecast (stable) asset turnover ratio of 0.5 and projected sales growth of 5% in 2010,
12.0% in 2011 and then 4% growth per year for the next 5 years after 2011 for Tootsie Roll.
Further, assume the current ratio in 2009 is 2.00 and that it will increase by equal amounts over
the next 5 years to reach a target level of 2.5. The 2009 gross profit margin dropped to 34% and
is assumed to decrease by 1% per year until it reaches a target 30% level. Finally, assume that net
profit margin is forecast to be 10% for the next 5 years.
12. Compute the forecast total assets in 2012 for Tootsie Roll.
13. Compute the forecast gross profit in 2011.
14. Assume that Roll maintains a 30 day collection period. Forecast the 2011 receivables.
15. Assume that current assets represent 25% of total assets. Compute the total current liabilities for
2011 (maintain the assumed asset turnover of 0.5 times).
16. You are valuing a company that has a November 30 financial year end. It is now June 21, 2010.
Assuming your company publishes its 10-Q within 2 weeks of the end of the quarter, how many
quarters of activity must you forecast when estimating the annual net income at 11/30/2010?
a. 1
b. 2
c. 3
d. 4
e. 5
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FSA 3321 – Summer 2010
Exam 3
Moore
17. Which of the following statements is correct regarding forecast errors.
a. A $1,000 forecast error in 12 years is more expensive in terms of valuation error, today, when
compared to an $300 error in 3 years. (assume a 15% discount rate)
b. Raw (undiscounted) forecasts errors are expected to diminish in time
c. A $1,000 forecast error in 10 years is less expensive in terms of valuation error, today, when
compared to an $400 error in 5 years. (assume a 15% discount rate).
d. When forecasting balance sheets in an equity valuation project, one is more concerned with
the accuracy of forecast total equity than forecast total liabilities.
e. It is normal to expect that raw forecast errors in a smooth growing terminal value perpetuity
are relatively lower than intermediate term forecasts.
18. You have just restated a set of financial statements to reflect capitalizing operating leases for
the past 5 years. Now you are going to perform the financial analysis. Which of the following
statements is absolutely correct when comparing the as-stated and re-stated financials?
a. The debt service margin will be higher on the second year of the restated ratios than as
stated.
b. The current ratio will decrease in the first year of the restatements as compared to as-stated.
c. Operating profit margin must always be smaller for the restated ratios.
d. Times interest earned will be smaller on a restated basis
e. Altman’s Z-score will increase on a restated basis.
19. You have just restated a set of financial statements to reflect impairing goodwill for a company
that has no impairment charges in the last 10 years. Now you are going to perform the financial
analysis. Which of the following statements is absolutely correct when comparing the as-stated
and re-stated financials?
a. The Asset Turnover ratio will decrease on a restated basis for all years.
b. The Current Ratio will decrease in the first year of the restatements as compared to as-stated.
c. The Gross profit margin must always be smaller for the restated ratios.
d. The Debt Service Margin be smaller on a restated basis
e. Capital Structure ratios will show an increase in leverage on a restated basis.
20. You have just restated a set of financial statements to reflect Capitalizing Research and
Development expenditures for a company. You assume that R&D has a 5 year useful life and
mid-year recognition of the annual expenditures. Now you are going to perform the financial
analysis. Which of the following statements is absolutely correct when comparing the as-stated
and re-stated financials?
a. The Asset Turnover ratio will decrease on a restated basis for each of the first 5 years.
b. The Current Ratio will decrease in the first year of the restatements as compared to as-stated.
c. The Operating profit margin must always be smaller for the restated ratios.
d. The liquidity ratios of the firm will increase on a restated basis.
e. Capital Structure ratios will show an increase in leverage on a restated basis in the first 5
years.
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FSA 3321 – Summer 2010
Exam 3
Moore
Income Statements for Tootsie Roll Corp
PERIOD ENDING
Total Revenue
Cost of Revenue
Gross Profit
Operating Expenses
Selling General and Administrative
Non Recurring
Total Operating Expenses
Operating Income or Loss
Total Other Income/Expenses Net
Earnings Before Interest And Taxes
Interest Expense
Income Before Tax
Income Tax Expense
Net Income
31-Dec-07
487,739
299,156
188,583
31-Dec-08
495,990
310,507
185,483
31-Dec-09
497,717
329,044
168,673
96,936
-17,097
79,839
108,744
7,445
116,189
2,537
113,652
36,425
77,227
99,233
97,821
99,233
86,250
8,270
95,441
726
94,715
28,796
65,919
97,821
70,852
6,850
77,702
535
77,167
25,542
51,625
31-Dec-07
31-Dec-08
31-Dec-09
77,227
16,367
-19,445
-327
9,454
3,947
-4,699
82,524
65,919
16,725
-1,670
-8,493
-6,319
-8,451
-2,055
55,656
51,625
16,380
1,335
2,598
10,235
6,506
1,385
90,064
-14,690
29,578
6,984
21,872
-39,207
26,560
23,673
11,026
-14,767
-29,012
434
-43,345
-15,132
-17,248
-59,999
-92,379
-17,264
-30,694
-32,001
-79,959
-17,542
-27,300
Statements of Cash Flow for Tootsie Roll Corp
PERIOD ENDING
Operating Cash Flows
Net Income
Depreciation
Adjustments To Net Income
Changes In Accounts Receivables
Changes In Liabilities
Changes In Inventories
Changes In Other Operating Activities
Total Cash Flow From Operating Activities
Investing Cash Flows
Capital Expenditures
Investments
Other Cashflows from Investing Activities
Total Cash Flows From Investing Activities
Financing Cash Flows
Dividends Paid
Sale Purchase of Stock
Net Borrowings
Total Cash Flows From Financing Activities
-5-
-44,842
FSA 3321 – Summer 2010
Exam 3
Moore
Tootsie Roll Balance Sheets
PERIOD ENDING
Assets
Current Assets
Cash And Cash Equivalents
Short Term Investments
Net Receivables
Inventory
Other Current Assets
Total Current Assets
Long Term Investments
Property Plant and Equipment
Goodwill
Intangible Assets
Other Assets
Total Non-Current Assets
Total Assets
Liabilities
Current Liabilities
Accounts Payable
Short/Current Long Term Debt
Total Current Liabilities
Long Term Debt
Other Liabilities
Deferred Long Term Liability Charges
Total Non-Current Liabilities
Total Liabilities
Stockholders' Equity
Common Stock
Retained Earnings
Treasury Stock
Capital Surplus
Other Stockholder Equity
Total Stockholder Equity
Total Liabilities and Equity
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31-Dec-07
31-Dec-08
31-Dec-09
91,336
54,892
39,496
55,032
5,840
246,596
55,350
178,760
74,194
189,024
69,772
567,100
813,696
55,729
23,531
41,211
63,957
6,489
190,917
61,249
202,898
74,194
189,024
73,357
600,722
791,639
57,606
41,307
36,860
57,402
6,551
199,726
74,393
201,401
73,237
189,024
74,944
612,999
812,725
81,655
32,001
113,656
7,500
43,047
32,088
82,635
196,291
62,211
28,004
90,215
7,500
12,582
78,665
70,743
160,958
57,972
23,228
81,200
7,500
33,270
75,753
93,295
174,495
36,983
164,236
-1,992
426,125
-7,947
617,405
813,696
37,329
169,233
-1,992
438,648
-12,537
630,681
791,639
37,706
156,752
-1,992
457,491
-11,727
638,230
812,725