please give me detailed answers for this past exam paper.

thanks!

Semester One Final Examinations, 2016 ACCT7106 Financial Statement Analysis This exam paper must not be removed from the venue Venue ____________________ Seat Number ________ Student Number |__|__|__|__|__|__|__|__| Family Name _____________________ First Name _____________________ School of Business EXAMINATION Semester One Final Examinations, 2016 ACCT7106 Financial Statement Analysis This paper is for St Lucia Campus students. Examination Duration: 120 minutes Reading Time: 10 minutes For Examiner Use Only Question Mark Exam Conditions: This is a Central Examination This is a Closed Book Examination - specified materials permitted During reading time - write only on the rough paper provided This examination paper will be released to the Library Materials Permitted In The Exam Venue: (No electronic aids are permitted e.g. laptops, phones) Calculators - Casio FX82 series or UQ approved (labelled) One A4 sheet of handwritten notes single sided is permitted Materials To Be Supplied To Students: 1 x 14 Page Answer Booklet Instructions To Students: Additional exam materials (eg. answer booklets, rough paper) will be provided upon request. Please answer all questions and include all workings and explanations. Page 1 of 8 Total ________ Semester One Final Examinations, 2016 ACCT7106 Financial Statement Analysis Question 1. 5 MARKS Using the financial information in the Statement of Changes in Shareholders' Equity below, please provide the clean surplus equation for 2006. Please provide all details of the numbers used in your computations. Any assumptions made need to be clearly explained. Balance at 1 July 2005 Net profit for the period Changes in accounting policies Restatements Related income tax on revaluations Gain/(loss) on available-for-sale investments Exchange differences arising on translation of foreign operations Ordinary shares $m 636.1 Foreign Employee Availablecurrency equity-settled for-sale Asset translation benefit revaluation revaluation reserve reserve reserve reserve $m $m $m $m 114 0.3 Total equity to members of the entity $m 795.2 81.5 -114 -0.6 0.3 -0.9 -0.9 Retained earnings $m 45.1 81.5 -114 -0.6 0.5 0.5 Transactions with equity holder's in their capacity as equity holders Issue of shares/share based payments expense Share issue costs Related income tax Dividends Balance at 30 June 2006 1012.7 -19.6 5.8 998.9 1635.0 1.1 0 0.5 Page 2 of 8 1.1 1.1 0 -0.6 0 -33.5 -33.5 92.5 1013.8 -19.6 5.8 -33.5 966.5 1728.5 Semester One Final Examinations, 2016 ACCT7106 Financial Statement Analysis Question 2. 14 MARKS a) Please compute the Advanced du Pont ratios for 2007 using the reformatted financial statement information provided in the tables directly below. There is no need to average the balance sheet numbers. As part of this process, please compute the return on equity (ROE) ratio first and then reconcile with the Advanced du Pont full formula of ratios. Also, make sure to compute all ratios (e.g., the profit margin (PM), asset turnover (ATO), spread, EIAT, OROA, and total financing effect). To receive marks, please provide the formulas used and full details of computations. b) Please compute the free cash flow (FCF) for 2007. c) Please discuss the 2007 profitability to shareholders of this company by reference to your computed Advanced du Pont ratios and FCF. Consolidated 2007 $m 1,696.4 REFORMATTED INCOME STATEMENT Total income Changes in inventories of finished goods Employee benefits Depreciation and amortisation Impairment Rental and other property expenses Children catering and consumables Advertising and promotions Insurances Communication Travel and motor vehicle expenses Net foreign exchange losses Other expenses Total operating expenses Net Operating Profit Before Tax Income tax benefit(expense) Other comprehensive income Net profit after tax (NOPAT) Net finance expense after tax (NFEat) Comprehensive net income Notes: The tax rate is 35%. There is no minority interest. Page 3 of 8 2006 $m 790.8 -9.6 -912.4 -38.9 -1.0 -256.3 -64.4 -16.4 -13.5 -11.6 -21.3 -5.1 -55.9 -1,406.4 290.0 -87.0 -18.7 184.3 -59.9 -14.7 -405.6 -14.3 -11.3 -117.8 -27.0 -8.8 -6.1 -4.9 -6.9 0 -29.9 -647.3 143.5 -47.2 -114.7 -18.4 -14.8 124.4 -33.2 Semester One Final Examinations, 2016 ACCT7106 Financial Statement Analysis Question 2. continued Consolidated 2007 2006 $m $m REFORMATTED BALANCE SHEET Current Operating Assets Trade and other receivables Inventories Prepayments Non-current assets classified as held for sale Non-current Operating Assets Trade and other receivables Property, plant and equipment Deferred tax assets Intangible Assets Total Operating Assets Current Operating Liabilities Trade and other payables Current tax liabilities Provisions Non-current Operating Liabilities Other payables Deferred tax liabilities Provisions Total Operating Liabilities Net Operating Assets Current Financial assets Cash and cash equivalents Other financial assets Non-current Financial Assets Other financial assets Total Financial Assets Current Financial Liabilities Borrowings Non-current Financial Liabilities Borrowings Total Financial Liabilities Net Financial Liabilities Net Assets Equity Issued capital Reserves Retained earnings Total Shareholders'' Equity Page 4 of 8 66.1 0.7 30.4 12 112.7 5.5 17.6 7.6 4.3 549.6 110 2891.1 3664.2 3 248.6 34.7 1530.8 1960.5 272.5 12.3 19.4 121.4 14.1 9.5 12.3 87.4 1.5 405.4 3258.8 16.3 20.8 2 184.1 1776.4 227.8 54.9 132.5 0 120.2 402.9 63.6 196.1 1149.7 8.1 610.4 1760.1 1357.2 1901.6 235.9 244 47.9 1728.5 1744.5 -15.4 172.5 1901.6 1635.0 1.0 92.5 1728.5 Semester One Final Examinations, 2016 ACCT7106 Financial Statement Analysis Question 3. 21 MARKS a) Please compute equity value per share as at 2007 using the dividend discount model, free cash flow model, and residual income valuation model. For this task, please refer to the forecasts and other financial data below (on the next two pages). Please provide all workings. b) Please discuss the characteristics of these three valuation models that might cause the three models to provide you with different equity values per share. c) The financial statement data used to compute the forecasts and other data provided below has been reformatted but not been checked for permanent and temporary accounting biases. Please examine your computations from part (a) and provide one example of a possible permanent or temporary accounting distortion that could be present in the financial statement data. Make sure to explain why it is a distortion, and what corrective action an analyst should take. d) Please discuss a revision of the forecasts below that could cause the free cash flow model to provide you with a negative equity value per share. Please explain how and why your suggested revision could cause the negative equity value per share in your answer. e) Please explain the similarities and differences between the residual income valuation model and the residual operating income valuation model. Page 5 of 8 Semester One Final Examinations, 2016 Question 3. ACCT7106 Financial Statement Analysis continued 1.Forecast sales Sales growth rate - estimated Sales 2.Forecast ATO and calculate NOA forecast ATO Calculate NOA (NOA=sales/ATO) 3.Revise sales forecasts 4.Forecast PM and calculate NOPAT Forecast PM Calculate NOPAT (NOPAT = Sales x PM) 5.Forecast other operating income (unusual items) Revise NOPAT 6.Calculate FCF (NOPAT - change in NOA) Change in NOA Calculate FCF 7.Forecast net dividend payout (d) estimated as a % of NOPAT 8.Calculate net payments to debt holders F payment = FCF - dividend 9.Forecast cost of debt and net debt balance Forecast cost of debt after tax Opening net debt balance Calculate cost of debt (net financing after tax) Calculate closing net debt (opening + interest - repayment) check leverage (net debtoa ratio) 10.Calculate comprehensive income NOPAT - NFEat F2008 5.0% 1,781 F2009 5.0% 1,870 F2010 5.0% 1,964 F2011 4.0% 2,042 F2012 4.0% 2,124 F2013 4.0% 2,209 0.700 2,545 0.700 2,672 0.700 2,805 0.700 2,918 0.700 3,034 0.700 3,156 4.0% 71 4.0% 75 5.0% 98 7.0% 143 7.0% 149 7.0% 155 -714 785 127 -52 134 -35 112 31 117 32 121 33 20% 20% 20% 20% 20% 20% 771 -67 -55 2 2 2 5.0% 1,357 68 654 0.26 5.0% 654 33 754 0.28 5.0% 754 38 847 0.30 5.0% 847 42 887 0.30 5.0% 887 44 929 0.31 5.0% 929 46 973 0.31 3 42 60 101 104 108 Page 6 of 8 Semester One Final Examinations, 2016 Question 3. ACCT7106 Financial Statement Analysis continued 11.Calculate equity Equity = NOA - NET DEBT Closing equity = opening equity + CI - d Cost of Capital (equity) Computation Beta Risk Free Rate (10 year govt. bond) Risk Premium 1.60 4.00% 5% CAPM 12.0% F2008 F2009 F2010 F2011 F2012 F2013 1,891 1,891 1,918 1,918 1,959 1,959 2,031 2,031 2,105 2,105 2,183 2,183 2006 2.7% 97.3% 2007 Capital 41.6% 5.0% 58.4% 12.0% Cost of Capital (WACC) Computation Net Debt Equity NOA Leverage Sales ($ millions) Sales growth NOPAT ($ millions) Net financial expense after tax (NFEat) NOA Net debt Shareholders' Equity (BVE) Comprehensive income (CI) d TV Growth Rate - dividend discount terminal value TV Growth Rate - discount free cash flow terminal value TV Growth Rate - residual income model terminal value Number of shares ($ millions) 2006 48 1,729 1,776 0.028 2007 1,357 1,902 3,259 0.714 Net Debt/NOA Equity/NOA WACC 2,006 790.8 10.54% 7.97% 0.00% -18.4 -14.8 1,776.4 47.9 1,729 -33 966.5 2,007 1,696.4 1.145 184.3 -59.9 3,258.8 1,357.2 1,902 124 48.7 2265 Page 7 of 8 Cost of 2006 0.13% 11.68% 11.81% 2007 2.08% 7.00% 9.08% Semester One Final Examinations, 2016 ACCT7106 Financial Statement Analysis END OF EXAMINATION Page 8 of 8