Question

Use the following information answer the questions below.

Company Name :- XEROX CORP

Total liabilities ($millions)         $ 13090

Total assets ($millions)               $ 18051

Net operating cash flows ($millions)                            $ 1095

Income from continuing operations ($millions)           $ 1349

  

Pension plan assumptions

      Discount rate 4.1 %      Expected asset return 5.8 %    Rate of salary increase 21  %

Pension plan disclosures

Projected benefit obligation ($millions)                       $ 1120

Fair value of pension plan assets ($millions)               $ 1123

Accumulated benefit obligation ($millions)                 $ 2230

Cash contributions to the pension plan during the year ($millions)                                 $ 1350

% of pension assets invested in equities 23 %

% of pension assets invested in bonds 28 %

OPEB disclosures

Expected postemployment benefit obligation ($millions)                                     $ 2305

Accumulated postemployment benefit obligation ($millions)                                     $ 4421

Fair value of plan assets ($millions)   $ 2230

From 2016 and previous financial statements

Actual percentage return on pension plan assets ($ actual return / $ beginning of year fair value of plan assets)

2016 5.6 %    2015 4.55 %   2014 6.3 %   2013 4.2  %   2012 3.98 %    2011 2.22 %

1. What dollar amount does your firm report for its defined-benefit pension plan and its OPEB plan on its year-end 2016 balance sheet? Prove this amount by reconciling from the related off-balance sheet footnote accounts.

2. What dollar amount does your firm report for its defined-benefit pension plan and its OPEB plan on its year-ending 2016 income statement?

3. Are your firm's defined-benefit pension plan and/or its OPEB plan material to your firm's financial position and financial performance? Explain using selected data from your firm's financial statements.

4. Are your firm's defined-benefit pension plan and its OPEB plan well-funded or poorly funded as of year-end 2016? Explain.

5.  Is your firm's 2016 expected return on plan assets assumption reasonable? Explain.

NOTE: At a minimum compare your firm's expected return on plan assets in 2016 with its average (geometric mean) return over the past 6 years. See details on computing the mean return below.

6. Defined-benefit pension plans and OPEB plans typically generate temporary differences between financial books and tax books. Discuss the significance of your firm's defined-benefit pension plans and OPEB plans to its year-end 2016 deferred tax accounts. Use dollar amounts from the tax footnote.

*Compute average (geometric mean) return

Suppose that in 3 successive years the return on an investment is 5%, 20%, and -4%. The geometric mean, or compound annual rate of return, is computed as:

             [(1.05)*(1.20)*0.96)]^1/3 -1 = 0.065 = 6.5%

Answer 1

To solve this question just input those variables which are to be used in logistic regression, as the question talks about using two variables only that is total loans and leases to total assets & total expenses/ total assets, so we will not input total cap/assets as an input variable in our excel, here we go

As one can see, we have taken only two variables , total exp/assets and total lns & leases/ assets in calculation, follwing steps have been followed to construct the above table

1. Assume logit= b0+ b1* independent variable1+ b2* independent variable 2 , take values of b0=0.1, b1=0.1, b2=0.1, note that these values of b0, b1 and b2 are just taken for calculation, one could assume any values here for bo , b1 and b2

2. Calculate exponential of logit in the next column by using exp (value in previous column)

3. Calculate probability by using formula, probability= exp (logit)/ { 1+ exp(logit)} in the next column

4. In next column, calculate log likelihood by using formula : financial condition value (i.e. 1 or 0) * LN( probability calculated in previous column) + (1- financial condition value)* LN( 1- probability calculated in previous column)

5. take the total of the column values of log likelihood

6. use solver function in excel to change this total by putting max value of 0 and changing the variable cells containing assumed values of b0, b1 and b2 , by clicking on solve, you will get actual values of b0, b1 and b2

which comes out to be b0=-14.72, b1=89.83, b2= 8.37

therefore you will get logit as

-14.72+ 89.83* Total exp/assets+8.37*Total lns & lsses/ assets

With values given in the question as total exp/ assets= 0.11 and total loans & leases/ assets= 0.6 , we get

logit as -14.72+ 89.83* 0.11+ 8.37*0.6= 0.1833

exp (logit) = 1.20

Probability= 0.546

Loglikelihood= 1*LN(0.546)+0*LN(1-0.546)= LN(0.546)= -0.605