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Leases and Pensions


Submitted By smf00
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Chapter 3 Problem (3-5) p. 208-209
Chapter 4 Problem (4-5) p. 256

(3-5) Leases, Pensions, Receivables Securitization
Westfield Capital Mgmt Co.'s equity investment strategy is to invest in companies with low price-to-book ratios, while considering differences in solvency and asset utilization. Westfield is considering investing in the shares of either Jerry's Dpt. Stores (JDS) or Miller Stores (MLS). Selected financial data for both companies follow: Selected Financial Data as of March 31, 2006 | $Millions | JDS | MLS | Sales | $21,250 | $18,500 | Fixed Assets | 5,700 | 5,500 | Short-Term Debt | | 1,000 | Long-Term Debt | 2,700 | 2,500 | Equity | 6,000 | 7,500 | Outstanding Shares (Millions) | 250 | 400 | Stock Price $ Per Share | 52 | 50 | a.) Compute each of the following ratios for both JDS and MLS 1. Price-to-book ratio a. JDS: 6000/250= 24, so 51.50/24= 2.15 b. MLS: 7,500/400=18.75 so 49.50/ 18.75= 2.64

2. Total-debt-to-equity ratio
(Total Liabilities/Shareholders Equity) c. JDS: 2,700/6,000=.45 % d. MLS:3,500/7,500 =.46.67%

3. Fixed-asset-utilization (turnover)
(sales/ net fixed assets) e. JDS: 21,250/5,700= 3.73 f. MLS: 18,500/5,500= 3.36

b.) Select the company that better meets Westfield’s criteria.
JDS better meets Westfield criteria because of the low price-to-book ratio as well as a lower total debt-to-equity ratio and a higher asset utilization turnover.

c.) The following information is from these companies’ notes as of March 31, 2006: 1. JDS conducts a majority of its operations from leased premises. Future minimum lease payments (MLP) on noncancellable operating leases follow ($millions).

MLP | | 2007 | $259 | 2008 | 213 | 2009 | 183 | 2010 | 160 | 2011 | 155 | 2012 and later | 706 | total MLP | $1,676 | less interest |

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