E11.2. First-Level Analysis of Financial Statements (Easy) A firm whose shares traded at three times their book value on December 31, 2008, had the accompanying financial statements. Amounts are in millions of dollars. The firm's marginal tax rate is 33 percent. There are no dirty-surplus income items in the balance sheet.

a. The firm paid no dividends and issued no shares during 2008, but it repurchased some stock. Calculate the amount of stock repurchased.

b. Calculate the following measures: Return on common equity (ROCE) Return on net operating assets (RNOA) Financial leverage (FLEV) The operating spread (SPREAD) Free cash flow

c. Does it make sense that this firm's shares should trade at three times book value? Assets 2008 2007 Balance Sheet, December 31, 2008 Liabilities and Shareholders' Equity 2008 2007 Operating cash $ 50 $ 20 Accounts payable $ 215 $ 205 Short-term investments 150 150 Long-term debt 450 450 Accounts receivable 300 250 Inventories 420 470 Common equity 1,095 1,025 Property and plant (net) 840 790 $1,760 $1,680 $1,760 $1,600 Sales interest income Operating expenses Interest expense Net income Income Statement, Year Ended December 31, 2008 - $3,295 9 53,068 36 61 (3,145) $ 159