The balance sheet for ABC Company on 12/31/2017 showed total assets of $4,274 mi
ID: 2540013 • Letter: T
Question
The balance sheet for ABC Company on 12/31/2017 showed total assets of $4,274 million, total liabilities of $2,448 million, and total equity of $1,826. The following is a condensed version of the statement of shareholders’ equity for ABC for the fiscal year ending December 31, 2017 (in millions of dollars):
Balance on January 1, 2017
1,782
Net income ( net of $230 reported taxes)
538
Unrealized holding gain on Investments net of tax benefit
14
Sale of common stock
37
Stock based compensation expense
85
Shares issued on exercise of options including tax benefit of $70
180
Repurchase of 25.3 million shares
(810)
Balance on December 31,2017
1,826
The following information is also provided in the equity footnote in the firm’s 10-K for 2017 (number of shares in millions):
Shares subject to options
Weighted Average Exercise Price/share
Outstanding January 1, 2017
69
16.5
Granted
12
36
Exercised
(12.5)
10.5
Cancelled/forfeited
(3.5)
31
Outstanding and Exercisable 12/ 31/ 2017
52
21
Additional Information:
The share repurchase occurred when the stock traded at $26 per share. At the balance sheet date in 2017, ABC had 100 million shares outstanding and the stock traded at $22.8.
The firm reported $15 million in interest income and $120 million in interest expense for 2017. Sales revenue was $3,700 million. The firm’s statutory tax rate is 35%.
Required:
Prepare a reformulated stockholders’ equity for fiscal year ending December 31, 2017.
Compute the Option Overhang at December 31, 2017.
Balance on January 1, 2017
1,782
Net income ( net of $230 reported taxes)
538
Unrealized holding gain on Investments net of tax benefit
14
Sale of common stock
37
Stock based compensation expense
85
Shares issued on exercise of options including tax benefit of $70
180
Repurchase of 25.3 million shares
(810)
Balance on December 31,2017
1,826
Explanation / Answer
Sales Revenue- 3700
Interest income- 15
Interest expense- 120
Net Revenue=3700+15-120
=3595
Gain on share repurchase =(26-22.8)*100
=3200
Total Revenue=3595+3200
=6795
Tax rate@35%=2378
Income after tax=6795-2378
= 4417
Stockholders Equity=4417/100
=44.17
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