Compared to the pension assumptions Stereo Warehouse used in 2008, which of the following pairs of assumptions
Question:
Compared to the pension assumptions Stereo Warehouse used in 2008, which of the following pairs of assumptions used in 2009 is most likely internally inconsistent?
A. Estimated future salary increases, inflation
B. Discount rate, estimated future salary increases
C. Expected long-term rate of return on plan assets, discount rate
Stereo Warehouse is a US retailer that offers employees a defined benefit pension plan and stock options as part of its compensation package. Stereo Warehouse prepares its financial statements in accordance with US GAAP.
Peter Friedland, CFA, is an equity analyst concerned with earnings quality. He is particularly interested in whether the discretionary assumptions the company is making regarding compensation plans are contributing to the recent earnings growth at Stereo Warehouse. He gathers information from the company’s regulatory filings regarding the pension plan assumptions in Exhibit 4 and the assumptions related to option valuation in Exhibit 5.
Step by Step Answer:
International Financial Statement Analysis CFA Institute Investment Series
ISBN: 9780470287668
1st Edition
Authors: Thomas R. Robinson, Hennie Van Greuning CFA, Elaine Henry, Michael A. Broihahn, Sir David Tweedie