Compute the return on equity (ROE) for Company B and Company F for the year 2018 and identify the company that appears to generate more return on stockholder’s equity in 2018.

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Answer 1

Question

Chapter 11, Problem 5PA

1.

To determine

Compute the return on equity (ROE) for Company B and Company F for the year 2018 and identify the company that appears to generate more return on stockholder’s equity in 2018.

2.

To determine

Compute the price earnings ratio for Company B and Company F for the year 2018 and describe whether the investors appear to value one company’s earnings more than the other.

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Recently, Abercrombie & Fitch has been implementing a turnaround strategy since its sales had been falling for the past few years (11% decrease in 2014, 8% in 2015, and just 3% in 2016.) One part of Abercrombie's new strategy has been to abandon its logo-adorned merchandise, replacing it with a subtler look. Abercrombie wrote down $20.6 million of inventory, including logo-adorned merchandise, during the year ending January 30, 2016. Some of this inventory dated back to late 2013. The write-down was net of the amount it would be able to recover selling the inventory at a discount. The write-down is significant; Abercrombie's reported net income after this write-down was $35.6 million. Interestingly, Abercrombie excluded the inventory write-down from its non-GAAP income measures presented to investors; GAAP earnings were also included in the same report. Question: What impact would the write-down of inventory have had on Abercrombie's expenses, Gross margin, and Net income?

Recently, Abercrombie & Fitch has been implementing a turnaround strategy since its sales had been falling for the past few years (11% decrease in 2014, 8% in 2015, and just 3% in 2016.) One part of Abercrombie's new strategy has been to abandon its logo-adorned merchandise, replacing it with a subtler look. Abercrombie wrote down $20.6 million of inventory, including logo-adorned merchandise, during the year ending January 30, 2016. Some of this inventory dated back to late 2013. The write-down was net of the amount it would be able to recover selling the inventory at a discount. The write-down is significant; Abercrombie's reported net income after this write-down was $35.6 million. Interestingly, Abercrombie excluded the inventory write-down from its non-GAAP income measures presented to investors; GAAP earnings were also included in the same report. Question: What impact would the write-down of inventory have had on Abercrombie's assets, Liabilities, and Equity?

Answer 2

Question

Chapter 11, Problem 5PA

1.

To determine

Compute the return on equity (ROE) for Company B and Company F for the year 2018 and identify the company that appears to generate more return on stockholder’s equity in 2018.

2.

To determine

Compute the price earnings ratio for Company B and Company F for the year 2018 and describe whether the investors appear to value one company’s earnings more than the other.

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Answer 3

Question

Chapter 11, Problem 5PA

1.

To determine

Compute the return on equity (ROE) for Company B and Company F for the year 2018 and identify the company that appears to generate more return on stockholder’s equity in 2018.

2.

To determine

Compute the price earnings ratio for Company B and Company F for the year 2018 and describe whether the investors appear to value one company’s earnings more than the other.

Expert Solution & Answer

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Answer 4

Question

Chapter 11, Problem 5PA

1.

To determine

Compute the return on equity (ROE) for Company B and Company F for the year 2018 and identify the company that appears to generate more return on stockholder’s equity in 2018.

2.

To determine

Compute the price earnings ratio for Company B and Company F for the year 2018 and describe whether the investors appear to value one company’s earnings more than the other.

Expert Solution & Answer

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Answer 5

Chapter 11, Problem 5PA

1.

To determine

Compute the return on equity (ROE) for Company B and Company F for the year 2018 and identify the company that appears to generate more return on stockholder’s equity in 2018.

2.

To determine

Compute the price earnings ratio for Company B and Company F for the year 2018 and describe whether the investors appear to value one company’s earnings more than the other.

Answer 6

Chapter 11, Problem 5PA

1.

To determine

Compute the return on equity (ROE) for Company B and Company F for the year 2018 and identify the company that appears to generate more return on stockholder’s equity in 2018.

Answer 7

Chapter 11, Problem 5PA

1.

To determine

Compute the return on equity (ROE) for Company B and Company F for the year 2018 and identify the company that appears to generate more return on stockholder’s equity in 2018.

Answer 8

2.

To determine

Compute the price earnings ratio for Company B and Company F for the year 2018 and describe whether the investors appear to value one company’s earnings more than the other.

Answer 9

2.

To determine

Compute the price earnings ratio for Company B and Company F for the year 2018 and describe whether the investors appear to value one company’s earnings more than the other.

Answer 10

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Answer 11

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Answer 12

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Answer 13

Ch. 11 - Prob. 1Q Ch. 11 - Prob. 2Q Ch. 11 - Prob. 3Q Ch. 11 - Explain each of the following terms: (a)...Ch. 11 - What are the differences between common stock and...Ch. 11 - What is the distinction between par value and...Ch. 11 - What are the usual characteristics of preferred...Ch. 11 - What items are included in Accumulated Other...Ch. 11 - What is treasury stock? Why do corporations...Ch. 11 - How is treasury stock reported on the balance...

Compute the return on equity (ROE) for Company B and Company F for the year 2018 and identify the company that appears to generate more return on stockholder’s equity in 2018.

Solution Summary: The author analyzes the return on equity (ROE) for Company B and Company F for the year 2018 and determines whether investors value one company's earnings more than the other.

Compute the return on equity (ROE) for Company B and Company F for the year 2018 and identify the company that appears to generate more return on stockholder’s equity in 2018.

Compute the price earnings ratio for Company B and Company F for the year 2018 and describe whether the investors appear to value one company’s earnings more than the other.

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Chapter 11 Solutions