Lucent Technologies, Inc., was formed from AT&T's Bell Laboratories researchorganization after the breakup of AT&T into the Baby Bells. Lucent designs,develops, and manufactures communication systems, supplying these systemsto most of the world's telecom operators for both wired and wireless servicesfor voice, data, and video delivery. In 1999 Lucent reported $38.301 billion inrevenues, against $31.806 billion in 1998 and $27.611 billion in 1997. Analystshave complained about the quality of Lucent's reported earnings over theyears.A. What questions arise regarding the quality of Lucent's earnings for 1997,1998, and 1999 from the partial cash flow statements in Exhibit 18.5? EXHIBIT 18.5Partial Consolidated Statements of Cash Flows(dollars in millions)Year Ended September 30199919981997Operating activitiesNet income$4,766$1,035$ 449Adjustments to reconcile net income to netcash (used in) provided by operating activities,net of effects from acquisitions of businessesCumulative effect of accounting changeBusiness restructuring reversalAsset impairment and other chargesDepreciation and amortizationProvision for uncollectibles(1,308)(141)236(100)(201)811,806751,4111491,499136Tax benefit from stock optionsDeferred income taxes88(21)1,2553672711,02656Purchased in-process research and developmentAdjustment to conform Ascend and Kenan's fiscal yearsIncrease in receivables-net151,683169(3,183)(1,612)(2,161)(403)Increase in inventories and contracts in processIncrease (decrease) in accounts payableChanges in other operating assets and liabilitiesOther adjustments for noncash items-netNet cash (used in) provided by operating activities(484)(316)(18)(397)668231(2,320)(840)$ (276)155(467)$1,86058$2,129

In this question, we will explain about the quality of Lucent Earnings of 1997,1998 and 1999 from…

Lucent Technologies, Inc., was formed from AT&T's Bell Laboratories research organization after the breakup of AT&T into the Baby Bells. Lucent designs, develops, and manufactures communication systems, supplying these systems to most of the world's telecom operators for both wired and wireless services for voice, data, and video delivery. In 1999 Lucent reported $38.301 billion in revenues, against $31.806 billion in 1998 and $27.611 billion in 1997. Analysts have complained about the quality of Lucent's reported earnings over the years. A. What questions arise regarding the quality of Lucent's earnings for 1997, 1998, and 1999 from the partial cash flow statements in Exhibit 18.5?

Lucent Technologies, Inc., was formed from AT&T's Bell Laboratories research organization after the breakup of AT&T into the Baby Bells. Lucent designs, develops, and manufactures communication systems, supplying these systems to most of the world's telecom operators for both wired and wireless services for voice, data, and video delivery. In 1999 Lucent reported $38.301 billion in revenues, against $31.806 billion in 1998 and $27.611 billion in 1997. Analysts have complained about the quality of Lucent's reported earnings over the years. A. What questions arise regarding the quality of Lucent's earnings for 1997, 1998, and 1999 from the partial cash flow statements in Exhibit 18.5?

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter4: Profitability Analysis

Section: Chapter Questions

Problem 19PC: Texas Instruments (TI) designs and manufactures semiconductor products for use in computers,...

See similar textbooks

Similar questions

A sporting goods manufacturer has decided to expand into a related business. Management estimates that to build and staff a facility of the desired size and to attain capacity operations would cost $820 million in present value terms. Alternatively, the company could acquire an existing firm or division with the desired capacity. One such opportunity is a division of another company. The book value of the division's assets is $650 million and its earnings before interest and tax are presently $90 million. Publicly traded comparable companies are selling in a narrow range around 12 times current earnings. These companies have book value debt-to-asset ratios averaging 40 percent with an average interest rate of 10 percent. a. Using a tax rate of 31 percent, estimate the minimum price the owner of the division should consider for its sale. (Do not round intermediate calculations. Enter your answer in millions rounded to 1 decimal place.) Minimum price million
A sporting goods manufacturer has decided to expand into a related business. Management estimates that to build and staff a facility of the desired size and to attain capacity operations would cost $520 million in present value terms. Alternatively, the company could acquire an existing firm or division with the desired capacity. One such opportunity is a division of another company. The book value of the division’s assets is $350 million and its earnings before interest and tax are presently $60 million. Publicly traded comparable companies are selling in a narrow range around 12 times current earnings. These companies have book value debt-to-asset ratios averaging 40 percent with an average interest rate of 10 percent. a. Using a tax rate of 36 percent, estimate the minimum price the owner of the division should consider for its sale. Note: Do not round intermediate calculations. Enter your answer in millions rounded to 1 decimal place.
Pfizer Inc. (PFE) discovers, produces, and distributes medicines, including Celebrex and Lipi-tor. Ford Motor Co. (F) develops, markets, and produces automobiles and trucks. Microsoft Corporation (MSFT) develops, produces, and distributes a variety of computer software and hardware products including Windows, Office, Excel, and the Xbox. 1. Without computing the return on assets, rank from highest to lowest Pfizer, Ford, and Microsoft in terms of their return on assets. 2. The following data (in millions) were taken from recent financial statements of each company: Pfizer Ford Net income ................................. Total assets at the beginning of the year...... Total assets at the end of the year ............ $ 21,979 154,229 181,476 $ 17,937 257,035 267,261 Microsoft $ 61,271 301,311 333,779 Compute the return on assets for each company using the preceding data, and rank the companies’ return on assets from highest to lowest. Round the return on assets to one decimal place. 3.…
In 2012, the Campbell Soup Company acquired Bolthouse Farms for $1.55 billion. This acquisition increased the level of vertical integration in Campbell, as Bolthouse Farms owned and operated extensive farming operations where it produced many food items used in Campbell's products. Suppose that the value of produce provided by these farms after the acquisition would be $95 million per year for Campbell and that, in addition, Campbell could save $10 million per year in costs it would otherwise spend in searching for and negotiating over equivalent produce. However, the transaction cost of the acquisition (lawyers' fees, re-locating some production facilities, paying severance to unnecessary employees, etc.) required a one-time payment of $50 million. Assume that Campbell receives the produce related benefits in perpetuity. If the interest rate used to discount future earnings is 5%, what is the present value of net benefits to Campbell? The present value (PV) of net benefits to Campbell…
Amazon.com, Inc. is the world's leading Internet retailer of merchandise and media. Amazon also designs and sells electronic products, such as e-readers. Netflix, Inc. is the world's leading Internet television network. Both companies compete in the digital media and streaming space. However, Netflix is more narrowly focused in the digital streaming business than is Amazon. Sales and average book value of fixed assets information (in millions) are provided for Amazon and Netflix for a recent year as follows: Netflix Amazon Sales $107,006 $6,780 Average book value of fixed assets 19,403 162 a. Compute the fixed asset turnover ratio for each company. Round to one decimal place. b. Which company is more efficient in generating sales from fixed assets? Interpret your results. C.
NGD Corp, a publically traded company, is a manufacturer of electrical supplies. Its main headquarters is based in Salt Lake City, Utah, and the company has been operating since 1977. The company sells its products to the retail market on a world-wide basis. Its major clientele is Home Depot and Lowes and has captured about 10 percent of the world market of light bulbs sales. Their financial statements presented below, for the Year Ending December 31, 2019, have been prepared using US GAAP. The controller would like to begin to see the effects of using IFRS on the Income Statement and Balance Sheet and you has been assigned to help with this task. The company would like to adapt IFRS by as early as next year as it is considering a new stock issue in the London Stock Exchange, which requires IFRS compliance. ADDITIONAL INFORMATION 1. NGD Corp. uses the LIFO method to account for its inventory. The LIFO reserve was $30,000 at the beginning of the year and $40,000 as of year-end. 2.…
Komatsu, Ltd.Komatsu Ltd was one of Japan's largest heavy industrial manufacturers. Komatsu was a large international firm with revenues of ¥989 billion. The company was organized on three major lines of business: Construction equipment, industrial machinery, and electronic-applied products. Construction EquipmentKomatsu was the world's 2nd-largest manufacturer of a complete line of construction equipment. The firm's product line contained over 300 models, including bulldozers, hydraulic excavators, wheel loaders, and dump trucks. With a more than 30% share of the domestic excavator market, Komatsu was the largest player in the Japanese market.The Product Development Process and Design for Manufacturability Cost StudiesThe product development process at Komatsu lasted 2 years on average.The Product Planning StageThe product planning process, which was last updated in 1981, began with the preparation of a long-range development plan.The Design StageThe objective of the design stage of…
Komatsu, Ltd.Komatsu Ltd was one of Japan's largest heavy industrial manufacturers. Komatsu was a large international firm with revenues of ¥989 billion. The company was organized on three major lines of business: Construction equipment, industrial machinery, and electronic-applied products. Construction EquipmentKomatsu was the world's 2nd-largest manufacturer of a complete line of construction equipment. The firm's product line contained over 300 models, including bulldozers, hydraulic excavators, wheel loaders, and dump trucks. With a more than 30% share of the domestic excavator market, Komatsu was the largest player in the Japanese market.The Product Development Process and Design for Manufacturability Cost StudiesThe product development process at Komatsu lasted 2 years on average.The Product Planning StageThe product planning process, which was last updated in 1981, began with the preparation of a long-range development plan.The Design StageThe objective of the design stage of…
Bisbee Health Products invests heavily in research and development (R&D), although it must currently treat its R&D expenditures as expenses for financial accounting purposes. To encourage investment in R&D, Bisbee evaluates its division managers using EVA. The company adjusts accounting income for R&D expenditures by assuming these expenditures create assets with a two-year life. That is, the R&D expenditures are capitalized and then amortized over two years. Western Division of Bisbee shows after-tax income of $8.4 million for year 2. R&D expenditures in year 1 amounted to $3.8 million and in year 2, R&D expenditures were $4.9 million. For purposes of computing EVA, Bisbee assumes all R&D expenditures are made at the beginning of the year. Before adjusting for R&D, Western Division shows assets of $30.6 million at the beginning of year 2 and current liabilities of $680,000. Bisbee computes EVA using divisional investment at the beginning of the year and a 14 percent cost of capital.…
Riverbend Semiconductor Corporation (RSC) is an Arizona corporation engaged in the manufacture and sale of semiconductors and other computer equipment. RSC spent $3.5 million on research and experimentation costs, and all its research and experimentation activity was conducted in the United States. The company handles its export sales through sales branches in Ireland and Taiwan. Total foreign sales from the foreign branches were $8.2 million and worldwide sales were $20.5 million. What amount of the total research and experimentation expense will be apportioned to foreign source income?
Through mergers and acquisitions, JLM, a global product and service company, in just five years, has doubled its size. JLM has more than 80,000 employees working in over 100 countries around the world. JLM participates in the business of petrol stations and in the exploration and production of products for motor vehicles. JLM created a first-level leader development program to provide a common skill set by JLM leaders. Low level leaders work in each JLM business, including retail operations. They also direct different numbers of employees. Some lead teams of more than ten employees, others work with only a few employees in functional areas such as research and development. In spite of these differences, the decisions of the leaders of the first level have influence in the rotation of personnel, the costs, the quality, the security, the innovation, and the performance of the atmosphere of JLM. The program includes a one-week leadership course that focuses on how to lead teams, the role…
Answer the question. As part of a broad effort to invigorate its pipeline and move more aggressively into biotechnology, a major pharmaceutical company plans to set up a new division dedicated to developing biotherapeutic drugs and research technologies. The company expects to pay $125 million for set up costs of its new division now and $7 million operating costs each year for the next 13 years. The company estimates that the new division will be able to generate annual revenue of $42 million beginning 6 years from now. What is the conventional Benefit-to-Cost ratio for this investment if the company's discount rate is 9 % per year and the project life is 13 years? Answer: