单选题
Falcon Financial Group is considering the purchase of Company A or Company B based on a low price-to-book investment strategy that also considers differences in solvency. Selected financial data for both firms, as of December 31, 20×7, follows:
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in millions, except per-share data
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Company A
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Company B
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Current assets
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$ 3000
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$ 5500
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Fixed assets
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$ 5700
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$ 5500
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Total debt
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$ 2700
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$ 3500
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Common equity
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$ 6000
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$ 7500
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Outstanding shares
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500
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750
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Market price per share
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$ 26.00
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$ 22.50
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The finns" financial statement footnotes contain the following:
Company A values its inventory using the first-in, first-out (FIFO) method.
Company B" s inventory is based on the last-in, first-out ( LIFO ) method. Had Company B used FIFO, its inventory would have been $ 700 million higher.
Company A leases its manufacturing plant. The remaining operating lease payments total $1600 million. Discounted at 10 percent, the present value of the remaining payments is $1000 million.
Company B owns its manufacturing plant.
To make the firms financials ratios comparable, calculate the adjusted price-to-book ratios for Company A and Company B.
Company A Company B
①A. $2.17 $2.81
②B. $1.63 $2.06
③C. $2.17 $2.06
【正确答案】
C
【答案解析】Company A should be adjusted for the operating lease liability and the related assets; however, adding the present value of the lease payments to both assets and liabilities does not change equity (book value). Thus, Company A"s adjusted P/B ratio is 2.17 =[$ 26 price/( $ 6000 million equity/$ 500 million shares)]. Company B"s inventory should be adjusted back to FIFO by adding the LIFO reserve to both assets and equity. Thus, Company B" s P/B ratio is 2.06 = $ 22.50/[ ( $ 7500 million equity + $ 700 million LIFO reserve)/750 million shares].