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Valuation
Measuring and Managing the Value of Companies
5th Edition
Chapter 27 Solutions
Leases, Pensions, and Other Obligations
Version 1.0
April 1, 2010
Chapter 27
Questions 1 & 2
PV (leased assets) Correct
Misestimation
Question 2
NOPLAT Operating
Adjusted pro$t
Marginal
Chapter 27
Question 3
Commentary
Using the present value of reported rental expenses systematically undervalues the asset, since it ignores the residual value returned at
the end of the lease contract. As stated in the text, most would agree that a $1 million asset leased for two years is worth more than the
present value of two payments of $100,000 per year.
Chapter 27
Question 4
Commentary
The cost for securitizing receivables is included in either SG&A expense or interest expense. If the cost is included in interest expense,
then receivables must be securitized; otherwise the cost of securitization will not be captured in the valuation. If the cost is included
in SG&A, then the cost must be removed from SG&A for valuation purposes, if (and only if) receivables are securitized.
Chapter 27
Question 5
Procter & Gamble
Income statement
2009 2008 2007
Procter & Gamble, annual report, Note 8
Postretirement benefit and employee stock ownership plan
Pension bene$ts Other retiree bene$ts
2009 2008 2007 2009 2008 2007
Source: www.pg.com/en_US/downloads/investors/annual_reports/2009/PG_2009_AnnualReport.pdf.
Chapter 27
Question 6
Commentary
P&G had more than $3.7 billion in unfunded pension benefit and $1.5 billion in unfunded other benefit in 2009.
Procter & Gamble
Annual report, 2009
Classi+cation of net amount recognized
Pension bene$ts
2009 2008 2009 2008
Noncurrent assets 133.0 321.0 – 200.0
Current liability (41.0) (45.0) (18.0) (16.0)
Noncurrent liability (3,798.0) (3,146.0) (1,516.0) (512.0)
Net amount recognized (3,706.0) (2,870.0) (1,534.0) (328.0)
For instance:
Other noncurrent liabilities, which totaled $9,249 million in 2009, included $3,798 million in unfunded pension liabilities and $1,516 million in unfunded other retiree benefit.
Source: www.pg.com/en_US/downloads/investors/annual_reports/2009/PG_2009_AnnualReport.pdf.
Other retiree bene$ts
Years ended June 30
Other noncurrent liabilities, which totaled $9,249 million in 2009, included $3,798 million in unfunded pension liabilities and $1,516 million in unfunded other retiree benefit.
