Some balance sheet information is shown here (all values n millions of dollars). see at the...

Some balance sheet information is shown here (all values n millions of dollars). see at the end

questions:

a. What change in the book value of the company's equity took place at the end of 2015 ?

b. Is the company's market-to-book ratio meaningful? Is its book debt-equity ratio meaningful? Explain.

c. Find the company's other financial statements from that time online. What was the cause of the change to its book value of equity at the end of 2015 ?

d. Does the company's book value of equity in 2016 imply that it is unprofitable? Explain.

Solution .... EXPLAIN HOW TO CALCULATE A .. how did they come up with $2.104

a. What change in the book value of the company's equity took place at the end of 2015 ?

The book value of equity decreased by $2.104 billion from the end of the previous year, and was negative

b. Is the company's market-to-book ratio meaningful? Is its book debt-equity ratio meaningful? Explain. (Select all the choices that apply.)

A. Because the book value of equity is negative in this case, the company's market-to-book ratio and its book debt-equity ratio are not meaningful.

C. Because the book value of equity is negative in this case, the company's market debt-equity ratio may be used in comparison.

c. Find the company's other financial statements from that time online. What was the cause of the change to its book value of equity at the end of 2015 ?

Information from the statement of cash flows helped explain that the decrease of book value of equity resulted from an increase in debt that was used to repurchase$2.104 billion worth of the firm's shares.Your answer is correct.d. Does the company's book value of equity in 2016 imply that it is unprofitable? Explain. (Select all the choices that apply.)

C.Negative book value of equity does not necessarily mean the firm is unprofitable.

Your answer is correct.

D.If a firm borrows to repurchase shares or invest in intangible assets (such as R&D), it can have a negative book value of equity.

Balance Sheet:	3/31/2016	12/31/2015	9/30/2015	6/30/2015
Assets
Current Assets
Cash and cash equivalents	293	300	255	232
Net receivables	401	362	385	460
Inventory	374	342	437	306
Other current assets	60	43	53	45
Total Current Assets	1,128	1,047	1,130	1,043
Long-term investments	128	97	—	200
Property, plant, and equipment	979	991	995	1,052
Goodwill	744	748	736	742
Other assets	777	832832	919919	797
Total Assets	3,756	3,715	3,780	3,834
Liabilities
Current Liabilities
Accounts payable	876	1,467	922	980
Short/current long-term debt	410	2	173	288
Other current liabilities	—	—	—	—
Total Current Liabilities	1,286	1,469	1,095	1,268
Long-term debt	2,381	2,124	474	475
Other liabilities	435	574	559	551
Total Liabilities	4,102	4,167	2,128	2,294
Total Shareholder's Equity	−346	−452	1,652	1,540
Total Liabilities and Shareholder's Equity	3,756	3,715	3,780	3,834

Solutions

Expert Solution

a) The book value of equity decreased by $2.104 billion from the end of the previous year, and was negative

b) A) Because the book value of equity is negative in this case, the company's market-to-book ratio and its book debt-equity ratio are not meaningful.Because the book value of equity is negative in this case, the company's market debt-equity ratio may be used in comparison.

c) Information from the statement of cash flows helped explain that the decrease of book value of equity resulted from an increase in debt that was used to repurchase$2.104 billion worth of the firm's shares

d) Book value of equity changes does not meant that, the company is unprofitable. Due to shortage of fund company may takes more debt to over come the existing crisis. Fund raised may be for the expansion of business. Negative book value of equity does not necessarily mean the firm is unprofitable.

The value of 2104 is the difference of equity value at the end of 30-09-2015 & 31-12-2015 (1652-(-452))=2104

If a firm borrows to repurchase shares or invest in intangible assets (such as R&D), it can have a negative book value of equity.

ekkarill92 answered 9 months ago

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