Ford Motor Company uses the last in, first out (LIFO) method for most of its inventories in
Question:
Ford Motor Company uses the last in, first out (LIFO) method for most of its inventories in its Automotive Division. The amounts of the LIFO reserve reported in footnotes for 1999 were
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Ford reported total shareholders' equity of $27.537 billion at the end of 1999 and $23.409 billion at the end of 1998, and it reported earnings for 1999 of $7.237 billion. The firm's 1.21 billion outstanding shares traded at $53 at the end of 1999. Ford faces a statutory tax rate of 36 percent.
a. What would have been Ford's shareholders' equity at the end of 1999 and1998 if it had used the first in, first out (FIFO) method to record its inventories?
b. What return on common equity would Ford have reported in 1999 if it had used FIFO?
c. Compare Ford's price-to-book ratios at the end of 1999 under LIFO and FIFO, and explain the difference.
d. Compare the firm's P/E ratio under LIFO and FIFO, and explain thedifference.
Step by Step Answer:
a The LIFO reserve is the amount by which cumulative FIFO profits would have been greater than LIFO ...View the full answer
