Question 1

Provisions for the sole purpose of income smoothing should be treated as an equity equivalent.

Accepted Answer

A) True 
 B)False  True

Question 2

Which of the following are typical nonoperating expenses?
I.Amortization expense.
II.Restructuring charges.
III.Litigation expenses.
IV.Purchased research and development (R&D).

Accepted Answer

A) I and II only. 
B) I,II,and III only. 
C) III and IV only. 
D) I,II,III,and IV. 
A) I and II only. 
B) I,II,and III only. 
C) III and IV only. 
D) I,II,III,and IV. D

Question 3

All of the following are related to the ongoing core business EXCEPT:

Accepted Answer

A) Royalty expense. 
B) Restructuring charges. 
C) Selling,general,and administrative (SG&A )expenses. 
D) R&D expenses. 
A) Royalty expense. 
B) Restructuring charges. 
C) Selling,general,and administrative (SG&A )expenses. 
D) R&D expenses. B

Question 4

List the three recommended steps in assessing the impact of nonoperating expenses and incorporating their information in cash flow forecasts.

Accepted Answer

1.Reorganize the income statem

Question 5

With respect to the treatment of goodwill in the analysis of a company and determining the return on invested capital (ROIC),which of the following is most accurate?

Accepted Answer

A) Treat goodwill impairments as operating and subtract cumulative impairments from goodwill on the balance sheet. 
B) Treat goodwill impairments as operating and add back cumulative impairments to goodwill on the balance sheet. 
C) Treat goodwill impairments as nonoperating and add back cumulative impairments to goodwill on the balance sheet. 
D) Treat goodwill impairments as nonoperating and subtract cumulative impairments from goodwill on the balance sheet. 
A) Treat goodwill impairments as operating and subtract cumulative impairments from goodwill on the balance sheet. 
B) Treat goodwill impairments as operating and add back cumulative impairments to goodwill on the balance sheet. 
C) Treat goodwill impairments as nonoperating and add back cumulative impairments to goodwill on the balance sheet. 
D) Treat goodwill impairments as nonoperating and subtract cumulative impairments from goodwill on the balance sheet.

Question 6

Product returns and warranties are nonoperating provisions that do not affect NOPLAT.

Accepted Answer

A) True 
 B)False

Question 7

The size of a nonoperating expense or one-time charge mentioned in a management discussion and analysis (MD&A )note might determine if it should be included in the adjustment to NOPLAT.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is most accurate concerning plant decommissioning costs and unfunded retirement plans?

Accepted Answer

A) They are both long-term operating provisions and should be treated as debt equivalents. 
B) They are both short-term operating provisions and should be treated as short-term liabilities. 
C) They are both long-term operating provisions.Plant decommissioning costs should be treated as a debt equivalent,and unfunded retirement plans should be treated as an equity equivalent. 
D) Plant decommissioning costs are not an operating provision and should not be included in value estimation.Unfunded retirement plans are long-term operating provisions and should be treated as an asset. 
A) They are both long-term operating provisions and should be treated as debt equivalents. 
B) They are both short-term operating provisions and should be treated as short-term liabilities. 
C) They are both long-term operating provisions.Plant decommissioning costs should be treated as a debt equivalent,and unfunded retirement plans should be treated as an equity equivalent. 
D) Plant decommissioning costs are not an operating provision and should not be included in value estimation.Unfunded retirement plans are long-term operating provisions and should be treated as an asset.

Question 9

Given the following entries,compute ROIC based on beginning-of-the-year investments.Assume that all invested capital entries are beginning-of-the-year entries and all income statement entries are for the entire year. Reported EBITA = 1,000
Reserve for plant decommissioning = 2,000
Interest associated with plant decommissioning = 200
Reserve for restructuring = 600
Equity = 4,000

Accepted Answer

A) 12.12 percent. 
B) 14.81 percent. 
C) 18.18 percent. 
D) 22.22 percent. 
A) 12.12 percent. 
B) 14.81 percent. 
C) 18.18 percent. 
D) 22.22 percent.

Question 10

If litigation charges recur frequently and grow with revenue,the analyst should treat the charges as operating.

Accepted Answer

A) True 
 B)False

Exam 19: Non-operating Items, Provisions, and Reserves

Provisions for the sole purpose of income smoothing should be treated as an equity equivalent.

Which of the following are typical nonoperating expenses? I.Amortization expense. II.Restructuring charges. III.Litigation expenses. IV.Purchased research and development (R&D).

All of the following are related to the ongoing core business EXCEPT:

List the three recommended steps in assessing the impact of nonoperating expenses and incorporating their information in cash flow forecasts.

With respect to the treatment of goodwill in the analysis of a company and determining the return on invested capital (ROIC),which of the following is most accurate?

Product returns and warranties are nonoperating provisions that do not affect NOPLAT.

The size of a nonoperating expense or one-time charge mentioned in a management discussion and analysis (MD&A )note might determine if it should be included in the adjustment to NOPLAT.

Which of the following is most accurate concerning plant decommissioning costs and unfunded retirement plans?

If litigation charges recur frequently and grow with revenue,the analyst should treat the charges as operating.

Why Value Value

Fundamental Principles of Value Creation

Conservation of Value and the Role of Risk

The Alchemy of Stock Market Performance

The Stock Market Is Smarter Than You Think

Return on Invested Capital

Growth

Frameworks for Valuation

Reorganizing the Financial Statements

Analyzing Performance

Forecasting Performance

Estimating Continuing Value

Estimating the Cost of Capital

Moving From Enterprise Value to Value Per Share

Analyzing the Results

Using Multiples

Valuation by Parts

Taxes

Leases and Retirement Obligations

Alternative Ways to Measure Return on Capital

Inflation

Cross-Border Valuation

Case Study: Heineken

Corporate Portfolio Strategy

Performance Management

Mergers and Acquisitions

Divestitures

Capital Structure, Dividends, and Share Repurchases

Investor Communications

Emerging Markets

Valuing High-Growth Companies

Cyclical Companies

Banks

Flexibility

Filters