Case Solutions

Corporate F Ross, Westerfield, 9th edition Case Solutio Input boxes in tan Output boxes in yellow Given data in blue Calculations in red Answers in green NOTE: Some functions used in these spreadsheets may requir the "Analysis ToolPak" or "Solver Add-in" be installed in Excel To install these, click on "Tools|Add-Ins" and select "Analy "Analysis sis and "Solver Add-In."

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Chapter 2 Cash Flows at Warf Computer, Inc. Input area:

Balance Sheet (in $ thousands) 2009 Current liabilities 290 $ 251 Accounts payable 459 428 Notes payable 411 425 Accrued expenses 59 50 Total current liabilities 1,219 $ 1,154 Long-term liabilities Deferred taxes 2,631 $ 2,038 Long-term debt 859 700 Total long-term liabilities 1,772 $ 1,338 508 454 Stockholders equity 2,280 $ 1,792 Preferred stock Common stock Capital surplus Accumulated retained earnings Less treasury stock Total equity

2010

Current assets Cash and equivalents Accounts receivable Inventories Other Total current assets Fixed assets Property, plant, and equipment Less accumulated depreciation Net property, plant, and equipment Intangible assets and others Total fixed assets

$

$

$ $ $

Total assets

$

3,499

Acquisition of fixed assets Sale of fixed assets New debt issued Debt retired New stock issued Stock repurchased

$ $ $ $ $ $

786 139 118 98 11 40

Income Statement (in $ thousands) Sales $ Cost of goods sold Selling, general, and administrative Depreciation Operating income $ Other income EBIT $ Interest expense Pretax income $ Taxes Current Deferred Net income $

Retained earnings Dividends

742

$ $

530 212

$

1,332 159 386 1,105

Operating cash flow

$

Net capital spending

Acquisition of fixed assets Sale of fixed assets Capital spending

$ $ $

786 (139) 647

Alternatively,

Ending fixed assets -Beginning fixed assets Depreciation Capital spending

$

$

2,946

$ $

386 109

4,844 2,858 543 159 1,284 48 1,332 95 1,237 495

Output area:

Earnings before interest and taxes Depreciation -Current taxes Operating cash flow

$

2,280 1,792 159 647

Total liabilities and shareholders equity

2010

$

2009

262 71 158 491

$

212 756 968

$

$

$

13 81 509 1,558 121 2,040

$

13 80 499 1,028 81 1,539

$

3,499

$

2,946

$

$ $

$

$

$

245 66 257 568

103 736 839

Net working capital cash flow

Ending NWC Beginning NWC NWC cash flow

$ $

728 586 142

Cash flow from assets

OCF -Net capital spending -Change in NWC Cash flow from assets

$

$

1,105 647 142 316

Cash flow to creditors

Interest Retirement of debt Debt service Proceeds from sale of long-term debt Total

$ $ $

95 98 193 (118) 75

Alternatively

Beginning long-term debt Ending long-term debt Interest Total

$

$

736 (756) 95 75

Cash flow to stockholders

Dividends Repurchase of stock Cash to stockholders Proceeds from new stock issue Total

$ $ $

212 40 252 (11) 241

Alternatively

Beginning total equity Ending total equity Dividends Retained earnings

$

$

Statement of cash flows Operations Net income Depreciation Deferred taxes Changes in assets and liabilities Accounts receivable Inventories Accounts payable Accrued expenses Other Total cash flow from operations Investing activties Acquisition of fixed assets Sale of fixed assets Total cash flow from investing activities Financing activties Retirement of debt Proceeds of long-term debt Notes payable Dividends Repurchase of stock Proceeds from new stock issues Total cash flow from financing activities Change in cash (on balance sheet)

$

$

$ $

$

1,539 (2,040) 212 530 241

742 159 109 (31) 14 17 (99) (9) 902

(786) 139 (647)

$

(98) 118 5 (212) (40) 11 (216)

$

39

Chapter 3 Ratios and Financial Planning at East Coast Yachts Input area:

Tax rate

40%

Sales COGS Other expenses Depreciation EBIT Interest Taxable income Taxes (40%) Net income

$

$

167,310,000 117,910,000 19,994,000 5,460,000 23,946,000 3,009,000 20,937,000 8,374,800 12,562,200

Dividends Add to RE

$ $

7,537,320 5,024,880

$ $

Assets Current Assets Cash Accounts rec. Inventory Total CA

$

$

3,042,000 5,473,000 6,136,000 14,651,000

Liabilities & Equity Current liabilities Accounts payable $ 6,461,000 Notes payable 13,078,000 Total CL $ 19,539,000 Long-term debt

Fixed assets Net PP&E

$

Total assets

$

Growth rate Minimum FA purchase

$

93,964,000

108,615,000 20% 30,000,000

Output area:

0.75 0.44 1.54 19.22 30.57 0.49 0.96 1.96 7.96 7.51% 11.57% 22.70%

1) Current ratio

Quick ratio Total asset turnover Inventory turnover Receivables turnover Debt ratio Debt-equity ratio Equity multiplier Interest coverage Profit margin Return on assets Return on equity 3) Retention ratio

0.40 9.99%

Sustainable growth rate Sales COGS Other expenses

$

184,018,615 129,685,224 21,990,725

Shareholder equity Common stock Retained earnings Total equity Total L&E

$

33,735,000

$ $

5,200,000 50,141,000 55,341,000

$

108,615,000

Depreciation EBIT Interest Taxable income Taxes (40%) Net income

$ $ $

Dividends Add to RE

$

5,460,000 26,882,666 3,009,000 23,873,666 9,549,466 14,324,199 8,594,520 5,729,680


$

$

3,345,793 6,019,568 6,748,779 16,114,140



$

103,347,828

Total Assets

$

119,461,968

EFN

$

3,166,002

$

COGS Other expenses Depreciation EBIT Interest Taxable income Taxes (40%) Net income

$ $ $

Dividends Add to RE

$

$

5,200,000 55,870,680 61,070,680

$

116,295,966

9,654,552 6,436,368

$

$

3,650,400 6,567,600 7,363,200 17,581,200



$

200,772,000 141,492,000 23,992,800 5,460,000 29,827,200 3,009,000 26,818,200 10,727,280 16,090,920


Total L&E

33,735,000

0.75 0.44 1.54 19.22 30.57 0.49 0.90 1.96 8.93 7.78% 11.99% 23.46%

Current ratio Quick ratio Total asset turnover Inventory turnover Receivables turnover Debt ratio Debt-equity ratio Equity multiplier Interest coverage Profit margin Return on assets Return on equity 4) Sales

Shareholder equity Common stock Retained earnings Total equity

$

$

112,756,800

Shareholder equity

$

33,735,000

Common stock Retained earnings Total equity Total Assets

$

130,338,000

EFN

$

11,378,832

5) EFN if minimum FA purchase is

$

Dividends Add to RE

$

$ $ $

$

$

$ $

$

118,959,168

5.81% 123,964,000 7,203,221

9,026,993 6,017,995

3,650,400 6,567,600 7,363,200 17,581,200



$

200,772,000 141,492,000 23,992,800 7,203,221 28,083,979 3,009,000 25,074,979 10,029,992 15,044,988


$

5,200,000 56,577,368 61,777,368

$ 30,000,000

Depreciation as a percentage of f ixed assets New fixed assets New depreciation Sales COGS Other expenses Depreciation EBIT Interest Taxable income Taxes (40%) Net income

Total L&E

$

123,964,000

Total Assets

$

141,545,200

EFN

$

23,004,405

Shareholder equity Common stock Retained earnings Total equity Total L&E

$

33,735,000

$ $

5,200,000 56,158,995 61,358,995

$

118,540,795

Chapter 4 The MBA Decision Input area:

Current salary Years until retirement Salary increase Tax rate

$

60,000 40 3% 26%

$ $ $ $

65,000 3,000 110,000 20,000 4% 31%

$ $ $ $

80,000 4,500 18,000 92,000 3.5% 29%

$ $

3,000 2,000

Wilton

Tuition per year Books & Supplies Starting salary Signing bonus Salary increase Tax rate Mount Perry

Tuition per year Books & Supplies Signing bonus Starting salary Salary increase Tax rate Both schools

Health insurance Room & board increase Discount rate

6.50%

Output area:

3. Current job Aftertax income

$

44,400.00

$

935,283.49

PV of tuition & expenses

$

(141,544.60)

PV of lost salary

$

(82,010.18)

Aftertax bonus

$

13,800.00

PV of bonus

$

12,166.90

Aftertax salary

$

75,900.00

PV of salary in two years

$

1,804,927.68

Value of salary today

$

1,591,331.25

PV of attending Wilton

$

1,379,943.36

Present value of salary Wilton MBA

Mount Perry MBA

PV of tuition & expenses

$

(89,500.00)

PV of lost salary

$

(41,690.14)

PV of signing bonus

$

12,000.00

Aftertax salary

$

65,320.00

PV of salary in one year

$

1,462,896.46

PV of salary today

$

1,373,611.70

PV of attending Mt. Perry

$

1,254,421.56

bonus after Wilton costs

$

1,146,671.37

Value in 2 years

$

1,300,583.34

Aftertax beginning salary

$

54,691.54

Pretax beginning salary

$

79,263.10

5. Current job PV minus

Chapter 5 Bullock Gold Mining Input area:

Year 0 1 2 3 4 5 6 7 8 9

$ $ $ $ $ $ $ $ $ $

Required return

Cash flow (400,000,000) 85,000,000 90,000,000 140,000,000 180,000,000 195,000,000 130,000,000 95,000,000 60,000,000 (95,000,000) 12%

Output area:

3.47

Payback period

23.73% =IRR(D8:D17) -48.93% =IRR(D8:D17,-0.99)

IRR IRR

16.21% =MIRR(D8:D17,D19,D19)

MIRR Profitability index NPV

1.43 =NPV(D19,D9:D17)/-D8 $

171,141,294.31 =NPV(D19,D9:D17)+D8

Chapter 6 Bethesda Mining Input area:

Equipment Land cost Aftertax land value Contract sales/tons Year 1 production Year 2 production Year 3 production Year 4 production Contract $/ton Spot market $/ton Variable cost/ton Year 1 depreciation Year 2 depreciation Year 3 depreciation Year 4 depreciation Fixed costs Reclamation costs Charitable expense NWC percent Tax rate Required return

$ $ $

85,000,000 6,000,000 7,000,000 500,000 620,000 680,000 730,000 590,000 $95 $90 $31 14.30% 24.50% 17.50% 12.50% $4,300,000 $2,800,000 $7,500,000 5% 38% 12%

Output area:

Time 0 cash flow Equipment Land NWC Total Sales Contract Spot Total Sales

$ (85,000,000) (7,000,000) (2,915,000) ($94,915,000) Year 1

$

Year 2

$

$

47,500,000 10,800,000 58,300,000

$

58,300,000

Year 3

$

$

47,500,000 16,200,000 63,700,000

$

47,500,000 20,700,000 68,200,000

$

63,700,000

$

68,200,000

VC FC Dep EBT Tax NI + Dep OCF

$ $ $

19,220,000 4,300,000 12,155,000 22,625,000 8,597,500 14,027,500 12,155,000 26,182,500

$ $ $

$

22,630,000 4,300,000 14,875,000 26,395,000 10,030,100 16,364,900 14,875,000 31,239,900

3,185,000 $ 3,410,000 (225,000) $

3,410,000 2,780,000 630,000

$ $

Beginning NWC Ending NWC NWC cash flow

$

Total cash flow

$

25,912,500

$

31,446,900

$

31,869,900

Book value

$

72,845,000

$

52,020,000

$

37,145,000

$

51,000,000 26,520,000 (9,302,400) 41,697,600

Salvage

2,915,000 $ 3,185,000 (270,000) $

21,080,000 4,300,000 20,825,000 17,495,000 6,648,100 10,846,900 20,825,000 31,671,900

$

MV BV Taxes

Salvage CF

$ Time 0 1 2 3 4 5 6

Profitability index Average accounting return IRR IRR MIRR NPV

$

Cash flow (94,915,000) 25,912,500 31,446,900 31,869,900 68,981,300 (1,736,000) (4,650,000)

1.1736 20.79% 19.01% -74.64% 14.93% $ 16,472,777.67

Year 4

$ 47,500,000 8,100,000 $ 55,600,000 $ 55,600,000

Year 5

Year 6

18,290,000 4,300,000 10,625,000 $ 22,385,000 8,506,300 $ 13,878,700 10,625,000 $ 24,503,700 $

2,780,000

$

2,780,000

$ 2,800,000

$ 7,500,000

$ (2,800,000) $ (7,500,000) (1,064,000) (2,850,000) $ (1,736,000) $ (4,650,000) $ (1,736,000) $ (4,650,000)

$ 27,283,700 $ 26,520,000

$

-

$

-

Chapter 6 Goodweek Tires, Inc. Input area:

Research and development Test marketing cost Initial equipment cost Equipment salvage value Year 1 depreciation Year 2 depreciation Year 3 depreciation Year 4 depreciation

$ $ $ $

10,000,000 5,000,000 140,000,000 54,000,000 14.30% 24.50% 17.50% 12.50%

$ $

38 22 5,600,000 2.50% 11.00%

$ $

59 22 14,000,000 2.00% 8.00%

OEM market:

Price Variable cost Automobile production Growth rate Market share Replacement market:

Price Variable cost Market sales Growth rate Market share Price increase above inflation VC increase above inflation Marketing and general costs Tax rate Inflation rate Required return Initial NWC NWC percentage of sales

$

$

1% 1% 26,000,000 40.00% 3.25% 15.90% 9,000,000 15%

Output area:

Nominal price increase Nominal VC increase

4.28% 4.28% Year 0

Year 1

Year 2

Year 3

Year 4

$

5,600,000 22,400,000 2,464,000 38.00

$

5,740,000 22,960,000 2,525,600 39.24

$

5,883,500 23,534,000 2,588,740 40.51

$

6,030,588 24,122,350 2,653,459 41.83

$

14,000,000 1,120,000 59.00

$

14,280,000 1,142,400 60.92

$

14,565,600 1,165,248 62.90

$

14,856,912 1,188,553 64.94

OEM:

Automobiles sold Tires for automobiles sold SuperTread tires sold Price Replacement market:

Total tires sold in market SuperTread tires sold Price Revenue:

OEM market Replacement market Total

$ $

93,632,000 66,080,000 159,712,000

$

54,208,000 24,640,000 78,848,000

$

$

99,091,916 69,592,152 168,684,068

$

57,942,694 26,209,112 84,151,806

$

$

104,870,213 73,290,975 178,161,188

$

59,391,261 25,635,456 85,026,717

$

$

110,985,458 77,186,390 188,171,848

Variable costs:

OEM market Replacement market Total

$ $

$

$

$

60,876,043 26,148,165 87,024,208

Revenue Variable costs Marketing and general costs Depreciation EBT Tax Net income OCF

$

$ $ $

159,712,000 78,848,000 26,000,000 20,020,000 34,844,000 13,937,600 20,906,400 40,926,400

$

$ $ $

168,684,068 84,151,806 26,845,000 34,300,000 23,387,262 9,354,905 14,032,357 48,332,357

$

$ $ $

178,161,188 85,026,717 27,717,463 24,500,000 40,917,008 16,366,803 24,550,205 49,050,205

$

$ $

188,171,848 87,024,208 28,618,280 17,500,000 55,029,360 22,011,744 33,017,616 50,517,616

$

New working capital:

Beginning Ending NWC cash flow

$

Book value of equipment

$

Aftertax salvage value: Market value Taxes Total

$ $

0 $ 9,000,000 (9,000,000) $ 140,000,000

$

25,302,610 $ 26,724,178 (1,421,568) $

26,724,178 26,724,178

119,980,000

85,680,000

61,180,000

43,680,000

$

Year 1

$ $

23,956,800 $ 25,302,610 (1,345,810) $ $

$

54,000,000 (4,128,000) 49,872,000 Year 0

Operating cash flow Capital spending Net working capital Total cash flows

9,000,000 $ 23,956,800 (14,956,800) $

40,926,400

Year 2

$

48,332,357

Year 3

$

49,050,205

Year 4

$

$

(140,000,000) (9,000,000) (149,000,000) $

(14,956,800) 25,969,600 $

(1,345,810) 46,986,547 $

(1,421,568) 47,628,637 $

Discounted cash flow

$

(149,000,000) $

22,406,903

34,978,941

30,592,703

NPV IRR Profitability index

$

9,424,967.81 18.35% 1.0633

$

$

$

50,517,616 49,872,000 26,724,178 127,113,794 70,446,422

Chapter 7 Bunyan Lumber, LLC Input area:

Total acreage Years since original planting 1P pond value 2P pond value 3P pond value Cash flow/acre from thinning

5,000 20 660 630 620 1,000

$ $ $ $

Years from today for harvest to begin

Harvest (MBF) per acre

1P

2P

3P

20 25 30 35

14.1 16.4 17.3 18.1

16% 20% 22% 24%

36% 40% 43% 45%

48% 40% 35% 31%

Defect rate Tractor cost (MBF) Road (MBF) Sale preparation and and administrative (MBF) Excavator piling/acre Broadcast burning/acre Site preparation/acre Planting costs/acre

$ $

5% 140 50

$

18

$ $ $ $

150 300 145 225

Nominal required return Inflation rate Tax rate Conservation fund Conservation fund growth

10.00% 3.70% 35% $

250,000 3.20%

Output area:

Real required return Cash flow from thinning

6.08% $

Harvest in

5,000,000 20

years

Revenue Tractor cost Road Sale preparation & admin Excavator piling Broadcast burning Site preparation Planting costs EBIT Taxes Net income (OCF)

$

$

42,194,250 9,870,000 3,525,000 1,269,000 750,000 1,500,000 725,000 1,125,000 23,430,250 8,200,588 15,229,663

PV of first harvest

$

4,681,788

$

Next thinning will occur in The effective real interest rate for this period is The real rate in the conservation fund i s The effective real interest rate for the conservation fund for this period is

40

years, and will reoccur at this same interval. 958.17% 6.59% 1183.87%

Aftertax cost of convservation Value of conservation at harvest

$ $

(162,500.00) (176,226.22)

PV of future thinnings PV of future harvests PV of conservation fund

$ $ $

521,825.80 488,615.51 (49,182.52)

Total NPV

$

Harvest in

5,643,046.36 25


$

$

49,232,800 11,480,000 4,100,000 1,476,000 750,000 1,500,000 725,000 1,125,000 28,076,800 9,826,880 18,249,920

PV of first harvest

$

4,177,464

$

years

Next thinning will occur in 45 years, and will reoccur at this same interval. The effective real interest rate for this period is 1321.11% The effective real interest rate for the conservation fund for this period is 1666.38% Value of conservation at harvest $ (172,251.67) PV of future thinnings PV of future harvests PV of conservation fund

$ $ $

Total NPV

$

Harvest in

378,470.46 316,209.37 (34,941.27) 4,837,202.85 30


$

$

52,024,993 12,110,000 4,325,000 1,557,000 750,000 1,500,000 725,000 1,125,000 29,932,993 10,476,547 19,456,445

PV of first harvest

$

3,316,238

$

years


$ $ $

Total NPV

$

276,469.34 183,367.60 (24,986.89) 3,751,087.59

Harvest in

35


$

$

54,516,748 12,670,000 4,525,000 1,629,000 750,000 1,500,000 725,000 1,125,000 31,592,748 11,057,462 20,535,286

PV of first harvest

$

2,606,233

$

years


$ $ $

Total NPV

$

202,995.97 105,810.96 (17,950.88) 2,897,089.08

Chapter 8 Financing East Coast Yachts Expansion Plans with a Bond I Input area:

Years to maturity Required return Amount needed Face value

$ $

20 7.50% 40,000,000 1,000

Coupon rate Tax rate

7.50% 35%

Year bond is called Spread above Treasury Treasury rate at call Treasury rate at call

7 0.40% 5.60% 9.10%

Output area:

2) Price of coupon bond # of coupon bonds needed

$

1,000 40,000

Price of zero coupon bond # of zeroes needed

$

229.34 174,413

3) Repayment of coupon bonds

$

40,000,000

Repayment of zeroes

$

174,413,000

4) Year 1 interest payments: Pretax coupon payment Aftertax coupon payment

$ $

3,000,000 1,950,000

Value of zero in one year Zero coupon growth Zero coupon bond

$ 246.86 $ 17.52 $ (1,069,544.61)

Cash outflow

Cash inflow

During the life of a bond, the zero generates cash inflows to the firm in the form of the interest tax shield of debt.

5) Make whole price

$

1,134.08

Make whole price

$

852.47

ssue

Chapter 9 Stock Valuation at Ragan Engines Input area:

Shares owned by each sibling Ragan EPS Dividend to each sibling Ragan ROE Ragan required return

$ $

150,000 5.08 320,000 25% 20% EPS

Blue Ribband Motors Corp. Bon Voyage Marine, Inc. Nautilus Marine Engines Industry average

$

Nautilus EPS w/o write-off

$

1.97

$

$ $

1,524,000.00 41.99% 58.01% 14.50% 732,808.40 13,326,968.97

$

44.42

$

1.41 29.15% 70.85% 9.21%

$

1.09 $ 1.16 (0.32) 0.64 $

Output area:

1) Total earnings Payout ratio Retention ratio Growth rate Total dividends next year Total equity value

Value per share 2) Industry EPS Industry payout ratio Industry retention ratio Industry growth rate

Year 1 2 3 4 5 6

$ $ $ $ $ $

Total dividends 732,808.40 839,075.23 960,752.15 1,100,073.82 1,259,598.97 1,375,619.37

Stock value in Year 5 Total stock value today

$ $

17,660,826.76 11,056,024.78

Value per share

$

36.85

3) Industry PE

12.02

Ragan PE (original assumption)

8.74

Ragan PE (revised assumption)

7.25

Stock price implied by industry PE

$

61.07

DPS 0.16 0.53 0.54 0.41

Stock price

$

$

15.19 12.49 23.05 16.91

ROE 11.00% 14.00% 14.00% 13.00%

R 14.00% 19.00% 18.00% 17.00%

4) Total earnings

Cash cow value

$

1,524,000.00

$

8,964,705.88

Percentage not attributable to growth opportunities

81.08%

Percentage attributable to growth opportunities

18.92%

5) ROE

15.88%

Chapter 10 A Job at East Coast Yachts Input area:

10-year annual

Standard deviation

Bledsoe S&P 500 Index Fund Bledsoe Small-Cap Fund Bledsoe Large Company Stock Fund Bledsoe Bond Fund

8.45% 13.45% 8.62% 6.25%

21.85% 24.83% 22.93% 9.20%

Risk-free rate (historic) Company stock expected return Company stock standard deviation

3.80% 16.00% 70.00%

Output area:

Bledsoe S&P 500 Index Fund Bledsoe Small-Cap Fund Bledsoe Large Company Stock Fund Bledsoe Bond Fund Company stock

0.2128 0.3886 0.2102 0.2663 0.1743

Chapter 11 A Job at East Coast Yachts, Part 2 Input area:

Bledsoe Large Company Stock Fund Bledsoe Bond Fund Risk-free rate (historic)

10-year annual

Standard deviation

8.62% 6.25% 3.80%

22.93% 9.20%

Correlation

0.15

Output area:

W eight of stock fund 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Portfolio E(R) 6.25% 6.49% 6.72% 6.96% 7.20% 7.44% 7.67% 7.91% 8.15% 8.38% 8.62%

Portfolio standard deviation 9.2000% 8.9170% 9.2373% 10.1037% 11.3923% 12.9780% 14.7653% 16.6896% 18.7087% 20.7949% 22.9300%

Dominant portfolio:

Weight of stock fund Weight of bond fund Standard deviation Expected return

19.37% 80.63% 9.20% 6.71%

Minumum variance portfolio:

Weight of large cap stock fund Weight of bond fund Expected return Variance Standard deviation

9.69% 90.31% 6.48% 0.007951 8.9167%

Sharpe optimal portfolio: (Using Solver)

Weight of large cap stock fund Sharpe ratio

22.54% 0.317133

Weight of large cap stock fund Weight of bond fund Expected return Standard deviation Sharpe ratio

22.54% 77.46% 6.78% 9.4098% 0.317133

Investment Opportunity Set 10.00% n r u t

8.00%

. R d e t c e p x E o i l o f t r o P

6.00%

4.00%

2.00%

0.00% 0.00%

5.00%

10.00%

15.00%

Portfolio Standard Deviation

20.00%

25.00%

Microsoft Excel 12.0 Answer Report Worksheet: [Jaffe 9th edition Case Solutions.xlsx]Chapter 11 Report Created: 1/5/2009 12:23:05 PM

Target Cell (Max) Cell Name $D$46 Sharpe ratio Portfolio E(R)

Original Value 0.266304

Adjustable Cells Cell Name $D$45 Weight of large cap stock fund Portfolio E(R)

Original Value Final Value 0.00% 22.54%

Constraints NONE

Final Value 0.317133

Chapter 12 The Fama-French Multi-Factor Model and Mutual Fund R Input area:

200312 200401 200402 200403 200404 200405 200406 200407 200408 200409 200410 200411 200412 200501 200502 200503 200504 200505 200506 200507 200508 200509 200510 200511 200512 200601 200602 200603 200604 200605 200606 200607 200608 200609 200610 200611

Mkt-RF

SMB

HML

RF

2.24 1.49 -1.16 -2.5 1.35 2.08 -3.87 0.16 1.95 1.67 4.67 3.36 -2.82 2.11 -1.9 -2.73 3.55 0.92 4.09 -0.89 0.77 -2.35 3.73 0.03 3.66 -0.5 1.54 0.94 -3.53 -0.44 -0.59 2.09 1.54 3.3 1.95

2.6 -1.2 1.85 -2.53 -0.12 2.25 -3.82 -1.56 2.82 0.49 4.11 0.18 -1.67 -0.76 -1.37 -3.95 3.01 2.58 2.77 -0.88 -0.65 -1.05 0.99 -0.47 5.33 -0.31 3.51 -1.22 -3 -0.47 -3.9 0.8 -1.22 1.68 0.7

1.66 0.37 -0.01 -1.69 -0.31 1.72 4.42 1.13 0.4 -0.95 1.96 -0.35 2.52 2.85 1.71 -0.49 -1.16 2.84 -0.47 1.44 1.23 -0.74 -1.75 0.51 1.18 -0.76 0.04 3.07 2.75 1.51 3.25 -1.66 -0.49 0.49 0.39

0.07 0.06 0.09 0.08 0.06 0.08 0.1 0.11 0.11 0.11 0.15 0.16 0.16 0.16 0.21 0.21 0.24 0.23 0.24 0.3 0.29 0.27 0.31 0.32 0.35 0.34 0.37 0.36 0.43 0.4 0.4 0.42 0.41 0.41 0.42

FMAGX Adj Close $ 62.03 $ 62.83 $ 63.72 $ 62.92 $ 61.84 $ 62.49 $ 63.40 $ 60.92 $ 61.07 $ 61.64 $ 62.59 $ 64.67 $ 66.68 $ 65.43 $ 66.20 $ 64.89 $ 63.55 $ 65.84 $ 65.87 $ 68.52 $ 67.73 $ 68.21 $ 67.33 $ 69.59 $ 70.96 $ 74.35 $ 73.24 $ 75.20 $ 76.64 $ 72.90 $ 72.36 $ 70.10 $ 71.79 $ 72.59 $ 74.71 $ 76.65

FLPSX Adj Close $ 22.50 $ 23.11 $ 23.79 $ 23.82 $ 23.24 $ 23.30 $ 24.11 $ 23.27 $ 23.20 $ 24.12 $ 24.45 $ 26.40 $ 27.45 $ 26.91 $ 27.76 $ 27.19 $ 25.90 $ 27.17 $ 28.03 $ 29.11 $ 29.08 $ 29.30 $ 28.06 $ 29.31 $ 29.84 $ 31.80 $ 31.60 $ 32.41 $ 33.05 $ 31.73 $ 31.35 $ 30.98 $ 31.55 $ 32.01 $ 33.13 $ 34.51

200612 200701 200702 200703 200704 200705 200706 200707 200708 200709 200710 200711 200712 200801 200802 200803 200804 200805 200806 200807 200808 200809 200810 200811 200812

0.68 1.5 -1.78 0.86 3.55 3.48 -1.88 -3.58 0.74 3.77 2.26 -5.27 -0.7 -6.44 -2.33 -1.22 4.94 2.21 -8.03 -1.46 0.98 -9.96 -18.55 -8.54 2.06

-0.93 0.02 1.39 -0.2 -2.06 -0.05 0.69 -2.74 -0.09 -2.47 0.07 -2.72 0.06 -0.76 -0.67 0.87 -1.6 2.8 0.91 3.89 3.66 -0.2 -2.05 -3.46 4.09

2.56 0 0.32 0.31 -1.08 -0.23 -1.07 -3.01 -2.42 -2.1 -1.97 -0.88 -0.02 3.13 0.04 0.26 0.08 -0.3 -0.93 3.57 1.65 4.37 -3.14 -5.09 -1.21

0.4 0.44 0.38 0.43 0.44 0.41 0.4 0.4 0.42 0.32 0.32 0.34 0.27 0.21 0.13 0.17 0.17 0.17 0.17 0.15 0.12 0.15 0.08 0.02 0.09

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

76.24 78.43 77.14 77.78 81.52 84.84 84.48 82.94 83.90 89.11 93.86 90.30 90.61 82.50 81.18 79.40 84.58 87.17 79.87 76.73 76.67 62.89 49.30 43.72 45.86

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

35.14 35.57 35.47 36.06 37.23 38.69 38.34 36.63 36.37 37.33 38.44 36.04 36.21 34.40 34.06 33.44 35.14 36.37 33.20 32.74 33.07 29.17 23.33 21.29 23.12

Output area:

200401 200402 200403 200404 200405 200406 200407 200408 200409 200410 200411 200412

Mkt-RF 0.0224 0.0149 -0.0116 -0.0250 0.0135 0.0208 -0.0387 0.0016 0.0195 0.0167 0.0467 0.0336

SMB 0.0260 -0.0120 0.0185 -0.0253 -0.0012 0.0225 -0.0382 -0.0156 0.0282 0.0049 0.0411 0.0018

HML 0.0166 0.0037 -0.0001 -0.0169 -0.0031 0.0172 0.0442 0.0113 0.0040 -0.0095 0.0196 -0.0035

Risk premium for mutual funds FMAGX FLPSX BSCFX 0.0122 0.0264 0.0368 0.0136 0.0288 0.0054 -0.0135 0.0004 0.0264 -0.0180 -0.0251 0.0277 0.0099 0.0020 0.0007 0.0138 0.0340 -0.0140 -0.0401 -0.0358 -0.0628 0.0014 -0.0041 -0.0174 0.0082 0.0386 0.0265 0.0143 0.0126 0.0399 0.0317 0.0783 0.0682 0.0295 0.0382 0.0600

200501 200502 200503 200504 200505 200506 200507 200508 200509 200510 200511 200512 200601 200602 200603 200604 200605 200606 200607 200608 200609 200610 200611 200612 200701 200702 200703 200704 200705 200706 200707 200708 200709 200710 200711 200712 200801 200802 200803 200804 200805 200806 200807 200808

-0.0282 0.0211 -0.0190 -0.0273 0.0355 0.0092 0.0409 -0.0089 0.0077 -0.0235 0.0373 0.0003 0.0366 -0.0050 0.0154 0.0094 -0.0353 -0.0044 -0.0059 0.0209 0.0154 0.0330 0.0195 0.0068 0.0150 -0.0178 0.0086 0.0355 0.0348 -0.0188 -0.0358 0.0074 0.0377 0.0226 -0.0527 -0.0070 -0.0644 -0.0233 -0.0122 0.0494 0.0221 -0.0803 -0.0146 0.0098

-0.0167 -0.0076 -0.0137 -0.0395 0.0301 0.0258 0.0277 -0.0088 -0.0065 -0.0105 0.0099 -0.0047 0.0533 -0.0031 0.0351 -0.0122 -0.0300 -0.0047 -0.0390 0.0080 -0.0122 0.0168 0.0070 -0.0093 0.0002 0.0139 -0.0020 -0.0206 -0.0005 0.0069 -0.0274 -0.0009 -0.0247 0.0007 -0.0272 0.0006 -0.0076 -0.0067 0.0087 -0.0160 0.0280 0.0091 0.0389 0.0366

0.0252 0.0285 0.0171 -0.0049 -0.0116 0.0284 -0.0047 0.0144 0.0123 -0.0074 -0.0175 0.0051 0.0118 -0.0076 0.0004 0.0307 0.0275 0.0151 0.0325 -0.0166 -0.0049 0.0049 0.0039 0.0256 0.0000 0.0032 0.0031 -0.0108 -0.0023 -0.0107 -0.0301 -0.0242 -0.0210 -0.0197 -0.0088 -0.0002 0.0313 0.0004 0.0026 0.0008 -0.0030 -0.0093 0.0357 0.0165

-0.0203 0.0102 -0.0219 -0.0228 0.0336 -0.0018 0.0378 -0.0145 0.0042 -0.0156 0.0305 0.0165 0.0443 -0.0183 0.0231 0.0155 -0.0531 -0.0114 -0.0352 0.0199 0.0070 0.0251 0.0218 -0.0093 0.0243 -0.0202 0.0040 0.0437 0.0366 -0.0082 -0.0222 0.0074 0.0589 0.0501 -0.0413 0.0007 -0.0916 -0.0173 -0.0236 0.0635 0.0289 -0.0854 -0.0408 -0.0020

-0.0213 0.0300 -0.0226 -0.0495 0.0466 0.0294 0.0361 -0.0040 0.0047 -0.0450 0.0414 0.0149 0.0622 -0.0097 0.0219 0.0161 -0.0442 -0.0160 -0.0158 0.0142 0.0105 0.0309 0.0375 0.0143 0.0078 -0.0066 0.0123 0.0280 0.0351 -0.0130 -0.0486 -0.0113 0.0232 0.0265 -0.0658 0.0020 -0.0521 -0.0112 -0.0199 0.0491 0.0333 -0.0889 -0.0154 0.0089

-0.0079 0.0133 -0.0060 -0.0468 0.0284 0.0477 0.0430 -0.0302 -0.0131 -0.0511 0.0638 0.0177 0.0637 -0.0054 0.0416 -0.0088 -0.0611 -0.0171 -0.0686 0.0181 0.0289 0.0536 0.0245 0.0055 0.0345 -0.0110 0.0025 0.0164 0.0344 -0.0031 -0.0461 0.0042 0.0448 0.0519 -0.0297 -0.0273 -0.0953 -0.0369 -0.0142 0.0488 0.0302 -0.0972 0.0030 0.0269

200809 -0.0996 -0.0020 0.0437 200810 -0.1855 -0.0205 -0.0314 200811 -0.0854 -0.0346 -0.0509 200812 0.0206 0.0409 -0.0121

-0.1812 -0.2169 -0.1134 0.0480

-0.1194 -0.2010 -0.0876 0.0851

-0.1042 -0.1949 -0.1070 0.0570

turns

BSCFX Adj Close $ 14.40 $ 14.94 $ 15.03 $ 15.44 $ 15.88 $ 15.90 $ 15.69 $ 14.72 $ 14.48 $ 14.88 $ 15.49 $ 16.57 $ 17.59 $ 17.48 $ 17.74 $ 17.67 $ 16.88 $ 17.40 $ 18.27 $ 19.10 $ 18.58 $ 18.39 $ 17.50 $ 18.67 $ 19.06 $ 20.34 $ 20.30 $ 21.22 $ 21.11 $ 19.91 $ 19.65 $ 18.38 $ 18.79 $ 19.41 $ 20.53 $ 21.12

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

21.32 22.15 21.99 22.14 22.60 23.47 23.49 22.50 22.69 23.78 25.09 24.43 23.83 21.61 20.84 20.58 21.62 22.31 20.18 20.27 20.84 18.70 15.07 13.46 14.24

SUMMARY OUTPUT Regression Statistics

Multiple R R Square Adjusted R S Standard Erro Observations

0.96923 0.93941 0.93617 0.01265 60

ANOVA df

Regression Residual Total

SS

3 56 59 Coefficients

Intercept Mkt-RF SMB HML

-0.00147944 1.23051197 -0.13006248 -0.35628371

0.13900418 0.00896533 0.14796951 tandard Erro

MS

0.04633473 0.0001601

t Stat

0.00166478 -0.88867336 0.04505004 27.3143341 0.08242486 -1.57795205 0.08694435 -4.09783623

F

289.419805

P-value

Significance F

4.7395E-34

Lower 95%

Upper 95%

Lower 95.0%

0.37798007 -0.00481439 0.00185551 -0.00481439 4.7026E-34 1.14026588 1.32075805 1.14026588 0.12020937 -0.29517932 0.03505436 -0.29517932 0.00013585 -0.53045418 -0.18211325 -0.53045418

Upper 95.0%

0.00185551 1.32075805 0.03505436 -0.18211325



0.97008 0.94106 0.93790 0.01177 60

ANOVA df


SS



0.00156955 1.04743233 0.32268708 0.0823834

0.12381327 0.00775471 0.13156798 tandard Erro

0.0015483 0.04189814 0.07665805 0.08086133

MS

0.04127109 0.00013848

t Stat

1.01372039 24.9994946 4.20943515 1.0188232

F

298.035876

P-value

Significance F

2.1912E-34

Lower 95%

0.31507618 -0.00153208 4.6288E-32 0.96350027 9.3607E-05 0.16912256 0.31266842 -0.07960131

Upper 95%

Lower 95.0%

0.00467117 -0.00153208 1.13136439 0.96350027 0.47625161 0.16912256 0.24436812 -0.07960131

Upper 95.0%

0.00467117 1.13136439 0.47625161 0.24436812



0.93283 0.87017 0.86321 0.01874 60

ANOVA df


SS



0.00212408 1.04525708 0.46569109 -0.26523463

0.13176815 0.01966039 0.15142854 tandard Erro

MS

0.04392272 0.00035108

t Stat

0.0024653 0.86159383 0.06671263 15.6680527 0.12205937 3.8152836 0.12875208 -2.06004154

F

125.108005

P-value

Significance F

8.4617E-25

Lower 95%

Upper 95%

Lower 95.0%

0.39258546 -0.0028145 0.00706267 -0.0028145 3.9677E-22 0.91161561 1.17889854 0.91161561 0.00034173 0.22117681 0.71020538 0.22117681 0.04405317 -0.52315603 -0.00731323 -0.52315603

Upper 95.0%

0.00706267 1.17889854 0.71020538 -0.00731323

Chapter 13 The Cost of Capital for Goff Computer, Inc. Input area:

Bond 2013 maturity book value 2013 bond price 2013 bond YTM Bond 2018 maturity book value 2018 bond price 2018 bond YTM Bond 2028 maturity book value 2028 bond price 2028 bond YTM Bond 2038 maturity book value 2038 bond price 2038 bond YTM BV of debt (balance sheet) BV of equity per share Stock price Shares outstanding (billions) Beta 3-month Treasury bill rate Market risk premium Bond 1 price Bond 1 YTM Tax rate

$

600 94.367 6.221% 500 92.106 6.811% 300 91.672 7.949% 400 80.725 8.254% 1,851 2.139 11.20 1.94 1.410 0.10% 7.00% 100.433 5.124% 35%

$

$

$

$ $ $

Output area:

2) RE from CAPM 3)

Company

Apple Inc. Dell Hewlett Packard Sun Microsystems Ingram Mico Inc. Tech Data Corp. Electronics for Imaging

9.97% Beta

1.87 1.41 1.19 1.92 1.18 1.28 1.40

Palm, Inc. Digi International Agilysis, Inc. Rackable Systems, Inc. SeaChange International MIPS Technologies Silicon Graphics Cray Inc. Industry Average

2.16 0.62 1.84 1.62 0.62 1.89 1.28 1.87 1.48

RE with industry beta

10.44% Book value (millions)

4)

Bond 1 Bond 2 Bond 3 Bond 4 Total 5) Book value of equity

Market value of equity Book value of company Market value of company

$

$ $ $ $ $

Percent of total

600 500 300 400 1,800 $ 4.1497 21.7280 5.9497 23.3526

WACC using book value

8.07%

WACC using market value

9.60%

0.33 0.28 0.17 0.22 1.00

billion billion million million

Quoted price

94.367 92.106 91.672 80.725

Market value (millions)

$

$

566.202 460.530 275.016 322.900 1,624.65

Percent Yield to of total Maturity

0.35 0.28 0.17 0.20 1.00

6.221% 6.811% 7.949% 8.254%

Book values

2.07% 1.89% 1.32% 1.83% 7.12%

Market values

2.17% 1.93% 1.35% 1.64% 7.08%

Chapter 16 Stephenson Real Estate Recapitalization Input area:

Shares outstanding Share price Purchase price Increase in cash flow Current cost of capital YTM on new debt Equity weight in new capital structure Tax rate

Output area:

2.

Assets Total assets

3. a) Aftertax earnings increase NPV b ) Assets

NPV of project Total assets New share price New shares issued Price

15,000,000 35.50 60,000,000 14,000,000 12.50% 8.00% 70% 40%

$ $

532,500,000 532,500,000

$ $

8,400,000 7,200,000

$

532,500,000 7,200,000 539,700,000

$

35.98 1,667,593

$

$

60,000,000 532,500,000 7,200,000 599,700,000

$

16,667,593 35.98

d ) PV of the project

$

67,200,000

Old assets PV of project Total assets

$ $

532,500,000 67,200,000 599,700,000

$

601,620,000

b ) Value unlevered

$

Tax shield Total assets

$

599,700,000 24,000,000 623,700,000

New stock price

$

37.58

Old assets NPV of project Total assets Total New shares outstanding New share price

4. a) Market value of company

acciones en circulación Precio de la acción Precio del terreno Incremento del flujo de caja anual Costo de capital Tasa cupón del Bono

Yield to maturity

Porcentaje de capital Tasa impositiva

Recomendamos emitir deuda,. Porque ele costo de esa fuente es menor

$

c ) Cash

5

$ $ $

Equity Total Debt & Equity

$ $

532,500,000 532,500,000


$ $

539,700,000 539,700,000


$ $

599,700,000 599,700,000


$ $

599,700,000 599,700,000

Debt Equity Total Debt & Equity

$

60,000,000 563,700,000 623,700,000

$

Chapter 17 McKenzie Corporation's Capital Budgeting Input Area:

Recession Normal Expansion

Probability 0.30 $ 0.50 $ 0.20 $

Without expansion 30,000,000 35,000,000 51,000,000

$ $

34,000,000 8,400,000

$ $

36,700,000 45,700,000

$

600,000

$ $ $

Without expansion 30,000,000 34,000,000 34,000,000

$

32,800,000

Face value of debt Cost of expansion

Output Area:

1) Expected value of firm Without expansion With expansion Expected NPV

2) Value of debt Recession Normal Expansion Expected value of debt

3) Value of equity Recession Normal Expansion

Without expansion $ $ $

1,000,000 17,000,000

Expected value of equity

$

3,900,000

Bondholder gain with expansion

$

900,000

Stockholder gain with expansion

$

8,100,000

Stockholder NPV

$

(300,000)

$ $ $

With expansion 33,000,000 46,000,000 64,000,000

$ $ $

With expansion 33,000,000 34,000,000 34,000,000

$

33,700,000 With expansion

$ $ $

12,000,000 30,000,000

$

12,000,000

Chapter 18 The Leveraged Buyout of Cheek Products, Inc. Input area:

2010 2011 2012 2,115.00 $ 2,371.00 $ 2,555.00 562.00 738.00 776.00 373.00 397.00 413.00 1,180.00 $ 1,236.00 $ 1,366.00 472.00 494.40 546.40 708.00 $ 741.60 $ 819.60

Sales Costs Depreciation EBT Tax Net income

$

Capital expenditures Change in NWC Asset sales

$ $ $

215 $ (94) $ 1,092 $

Interest payments

$

1,482

$ $

Terminal growth rate Terminal D/E Return on assets Pretax cost of debt Pretax debt after Year 5 Tax rate Shares outstanding (million)

$

186 $ (143) $ 791

234 78

1,430

$

1,534

$ 1,886.60

$

920.60

$

$

613.60

3.50% 25.00% 14.00% 12.50% 8.00% 40.00% 167

Output area:

1)

2)

Unlevered cash flows

$

2,052.00

PV unlevered CF

$

4,928.50

Terminal value of future unlevered CF in Year 5

$

9,583.11

Value today of terminal value

$

4,977.17

Interest tax shield

$

592.80

572.00

3)

PV of interest tax shield

$

Levered equity return WACC

4)

2,126.55 15.20% 13.36%

Terminal value of company

$ 10,205.14

Terminal value of tax shields

$

622.03

Value of terminal tax shields today

$

345.18

PV unlevered CF PV tax shields Value of company

$ 9,905.67 $ 2,471.73 $ 12,377.41

Share price to offer

$

74.12

2013 2014 $ 2,616.00 $ 2,738.00 839.00 884.00 434.00 442.00 $ 1,343.00 $ 1,412.00 537.20 564.80 $ 805.80 $ 847.20 $ $

237 73

$ $

234 83

$

1,495

$

1,547

$

929.80

$

972.20

$

598.00

$

618.80

Chapter 20 East Coast Yachts Goes Public Input area:

Underwriter fee Legal fees and expenses SEC registration fees Filing fees NASDAQ listing fee Transfer agent fee Engraving expenses Other expenses Audit cost/year IPO size

$ $ $ $ $ $ $ $ $

7.00% 1,500,000 15,000 20,000 100,000 8,500 525,000 75,000 300,000 70,000,000

Underwriter fees

$

4,900,000

Total fees excluding underwriter fees

$

2,243,500

Total fees

$

7,143,500

Net amount raised

$

65,100,000

Output area:

Fee as a percentage of funds raised

10.97%

Chapter 21 The Decision to Lease or Buy at Warf Computers Input area:

Purchase price Year 1 depreciation Year 2 depreciation Year 3 depreciation Year 4 depreciation Salvage value Lease payment Security deposit Cost of debt Tax rate

$

$ $ $

2,500,000 0.333 0.444 0.148 0.074 300,000 650,000 150,000 11% 35%

Alternative lease:

Lease payments Year 2 salvage value

$ $

1,150,000 1,000,000

Output area:

1) Aftertax cost of debt

7.15% Year 0

Saved purchase Lost salvage value Lost depreciation tax shield Security deposit Lease payment Tax on lease payment Cash flow from leasing

$

$

(150,000) (650,000) 227,500 1,927,500 $

NAL

$

22,917.57

$

557,500

2) Book value in Year 2

2,500,000 (291,375)

Year 0

Saved purchase Lost salvage value

Year 1

$

2,500,000

(650,000) 227,500 (713,875)

Year 1

Lost depreciation tax shield Lease payment Tax on lease payment Cash flow from leasing

$

NAL

$

PV of lease payments

(291,375) (1,150,000) (1,150,000) 402,500 402,500 1,752,500 $ (1,038,875) (291,533.21) $2,186,036.04

Year 2

$

Year 3

Year 4

(388,500)

(129,500)

(195,000) (64,750) 150,000

(650,000) 227,500 (811,000) $

(650,000) 227,500 (552,000) $ (109,750)

Year 2

(845,125)

(388,500)

$ (1,233,625)

Chapter 22 Clissold Industries Options Input Area:

Current stock price $ Exercise price $ Expiration (months) Risk-free rate Standard deviation

50 55 6 4% 78.82%

Output Area:

d1

0.1435

d2

(0.4138)

N(d1)

0.5571

N(d2)

0.3395

Call

$

9.55


Target Cell (Value Of) Cell Name $D$22 Call

Original Value $ 22.48

Adjustable Cells Cell Name $D$11 Standard deviation


Constraints NONE

Final Value $ 27.65






Constraints NONE

Final Value $ 19.45






Constraints NONE

Final Value $ 11.95






Constraints NONE

Final Value $ 9.55

Chapter 23 Exotic Cuisine Employee Stock Options Input Area:

Current stock price Exercise price Expiration (years) Risk-free rate Standard deviation

$ $

36.28 40 10 4.40% 60.00%

Output Area:

d1

1.1291

d2

(0.7682)

N(d1)

0.8706

N(d2)

0.2212

Call

$

25.89

Chapter 24 S&S Air's Convertible Bond Input area:

Industry PE Company EPS Conversion price (stock) Maturity (years) Convertible bond coupon Conversion value of bond Plain vanilla coupon

$ $ $ $

12.50 1.60 25.00 20.00 6% 800 7%

Output area:

Stock price

$

Intrinsic bond value

$ 893.22

Floor value

$ 893.22

Conversion ratio Conversion premium Option value

20.00

32.00 25.00% $ 106.78

Chapter 25 Williamson Mortgage, Inc. Input area:

Mortgage value Years Interest rate

$

4) Interest rate 5) Interest rate

500,000 25 6.50% 7.40% 5.80%

Output area:

1) Mortgage payment

$

4) Mortgage value

$ 460,892.97

5) Mortgage value

$ 534,071.83

3,376.04

A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

B

C

E

F

G

Chapter 26 Keafer Manufacturing Working Capital Management Input Area:

A/R Percent uncollectible Collection period % of purchases for next Q sales Suppliers paid % of sales for expenses Interest and dividends Outlay in third Q Beginning cash balance Target cash balance Borrowing rate Invested securities Beginning short-term borrowing

$

Last years' sales

$

$

553,000 10% 57 50% 53 25% 148,000 260,000 149,500 90,000 1.2% 0.5% -

$ $ $ $

Q1

Growth rate in sales

26 27 28

Output Area:

29 30 31 32

Sales next year Sales following year

33 34 35 36 37 38 39 40 41 42 43

D

Q2

735,000

Q3

761,000

$

817,000

$

709,000

$

821,880.00

$

882,360.00

$

765,720.00

8.00%

$ $

793,800.00 857,304.00

Quarterly cash flow Q1 Q2

Collections from previous quarter Collections from current quarter sales Payments to suppliers for previous quarter Payments to suppliers for current quarter Expenses Dividends and interest Outlay Net cash flow

Q4

$

$

$

497,700.00 $ 291,060.00 (233,730.00) (168,942.00) (198,450.00) (148,000.00) 39,638.00

$

Q3

502,740.00 $ 301,356.00 (241,998.00) (181,374.00) (205,470.00) (148,000.00) 27,254.00

$

520,524.00 $ 323,532.00 (259,806.00) (157,398.00) (220,590.00) (148,000.00) (260,000.00) (201,738.00) $

Q4

558,828.00 280,764.00 (225,462.00) (176,223.60) (191,430.00) (148,000.00) 98,476.40

A 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81

B

C

D

E

Cash Balance Q1

Beginning cash balance Net cash inflow Ending cash balance Minimum cash balance Cumulative surplus (deficit)

$

Target cash balance Net cash inflow New short-term investments Income on short-term investments Short-term investments sold New short-term borrowing Interest on short-term borrowing Short-term borrowing repaid Ending cash balance Minimum cash balance Cumulative surplus (deficit)

$

$ $

149,500.00 39,638.00 189,138.00 90,000.00 99,138.00

$ $ $

F

Q2

189,138.00 27,254.00 216,392.00 90,000.00 126,392.00

G

Q3

$

Q4

$

216,392.00 $ (201,738.00) 14,654.00 $ 90,000.00 (75,346.00) $

14,654.00 98,476.40 113,130.40 90,000.00 23,130.40

90,000.00 $ 27,254.00 (27,751.18) 497.18 90,000.00 $ (90,000.00) $

90,000.00 $ (201,738.00) 635.93 127,186.68 73,915.39 90,000.00 $ (90,000.00) $

90,000.00 98,476.40 (23,674.03) (886.98) (73,915.39) 90,000.00 (90,000.00) -

$

Short-term Financial Plan

Beginning short-term investments Ending short-term investments Beginning short-term debt Ending short-term debt Q1: Q2: Q3: Q4:

$ $ $

$

Excess funds at start of quarter of Excess funds at start of quarter of Excess funds at start of quarter of Shortage of funds at start of quarter of Net cash cost Q1 Q2 Q3 Q4 Cash generated by short-term financing

90,000.00 $ 39,638.00 (39,935.50) 297.50 90,000.00 $ (90,000.00) $ 59,500.00 99,435.50 $59,500.00 $99,435.50 $127,186.68 $73,915.39

$

$

297.50 497.18 635.93 (886.98) 543.63

$

$

99,435.50 127,186.68 earns earns earns costs

$

$

127,186.68 73,915.39 $297.50 $497.18 $635.93 $886.98

$

$

23,674.03 73,915.39 -

in income. in income. in income. in interest.

H 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43

H 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81


Target Cell (Value Of) Cell Name $F$68 Ending short-term debt Q3

Original Value $ 73,915.39

Adjustable Cells Cell Name $D$24 Growth rate in sales Q1


Constraints NONE

Final Value $ -

Chapter 27 Cash Management at Richmond Corp. Input Area:

Number of lockboxes Daily payments Investment account rate Wire transfer cost Sweep time Money market yield ACH transfer cost

$

$

4 235,000 0.068% 0.20% 14 0.075% 200

Output:

1. FVA

$13,191,889.06

$ 13,203,190.71 The company should go ahead with the plan.

2. FVA

3. ACH transfer cost

$

400.98

Chapter 28 Credit Policy at Braam Industries Input Area:

Sales

Current policy Option 1 Option 2 Option 3

$ $ $ $

Variable costs Interest rate

Default rate

140,000,000 158,000,000 149,000,000 167,000,000 45% 6.00%

Output Area:

Daily interest rate

0.01597%

Current policy:

Daily sales Variable costs (daily) Defaults on sales (daily) Administrative costs (daily) Interest rate

$ $ $ $

383,561.64 172,602.74 7,287.67 6,136.99 0.6085%

NPV

$ 32,291,008.61

Option 1:


$ $ $ $

NPV

$ 32,369,467.12

Option 2:

432,876.71 194,794.52 12,553.42 11,687.67 0.6567%

1.90% 2.90% 2.20% 2.50%


$ $ $ $

408,219.18 183,698.63 8,980.82 7,756.16 0.8175%

NPV

$ 25,233,509.84

Option 3:


$ $ $ $

457,534.25 205,890.41 11,438.36 9,608.22 0.7853%

NPV

$ 29,158,049.54

Administrative costs

Receivables period

1.60% 2.70% 1.90% 2.10%

38 41 51 49

Chapter 29 The Birdie Golf-Hybrid Golf Merger Input Area:

Year 1

Sales Production costs Depreciation Other expenses EBIT Interest Taxable income Taxes (40%) Net income Investments Net working capital Fixed assets Total Sources of financing New debt Profit retention Total Tax rate Dividends from Hybrid today Year 2 tax-loss carryforward Year 3 tax-loss carryforward Terminal value of Hybrid in five years Debt level in five years Current target debt-equity ratio New target debt-equity ratio Risk-free rate Expected return on market Company acquirer WACC Cost of debt for each company Current beta for Hydrid equity Loan to buy company Cash paid Shares outstanding in target

$

$ $ $

$ $

$ $

$ $ $ $ $

$ $

640,000,000 449,000,000 60,000,000 64,000,000 67,000,000 15,200,000 51,800,000 20,720,000 31,080,000

16,000,000 12,000,000 28,000,000

28,000,000 28,000,000 40% 120,000,000 20,000,000 20,000,000 720,000,000 240,000,000 0.5000 1.0000 6% 13% 11% 8% 1.30 88,000,000 440,000,000 6,400,000

Stock price of acquirer Shares outstanding in acquirer

$

94.00 14,400,000

Output Area:

Current debt weight Current equity weight Beta of debt Hybrid beta Discount rate for normal operations

0.33 0.67 0.29 0.96 12.73%

New debt weight New equity weight New stock beta Discount rate for dividends

0.50 0.50 1.59 17.13% Year 0

Acquisition of Hybrid Dividends from Hybrid Tax-loss carryforwards Terminal value of equity Terminal value of debt Total

$ $

(440,000,000) 120,000,000

$

(320,000,000)

$ $

(440,000,000) 120,000,000

$

(320,000,000)

1) NPV

$

31,890,413.71

2) Highest price to offer

$ 471,890,413.71

Present values

Acquisition of Hybrid Dividends from Hybrid Tax-loss carryforwards Terminal value of equity Terminal value of debt Total

Price per share offered Highest share price to offer 3) New share price

$ $

68.75 73.73

$

96.21

Exchange ratio 4) Highest exchange ratio

0.7145 0.7314

Year 2

$

$ $ $

$ $

$ $

Year 3

720,000,000 504,000,000 64,000,000 72,000,000 80,000,000 17,600,000 62,400,000 24,960,000 37,440,000

$

20,000,000 20,000,000 40,000,000

$

12,800,000 27,200,000 40,000,000

$

$ $ $

$

$

Year 4

800,000,000 560,000,000 66,000,000 80,000,000 94,000,000 19,200,000 74,800,000 29,920,000 44,880,000

$

20,000,000 14,400,000 34,400,000

$

12,800,000 21,600,000 34,400,000

$

$ $ $

$

$

Year 5

900,000,000 632,000,000 66,400,000 90,400,000 111,200,000 20,000,000 91,200,000 36,480,000 54,720,000

$

24,000,000 96,000,000 120,000,000

$

12,000,000 21,600,000 33,600,000

$

$ $ $

$

$

1,000,000,000 705,000,000 67,000,000 97,000,000 131,000,000 21,600,000 109,400,000 43,760,000 65,640,000

24,000,000 5,600,000 29,600,000

9,600,000 20,000,000 29,600,000

Year 1

Year 2

Year 3

Year 4

$

31,080,000

$

10,240,000 20,000,000

$

23,280,000 20,000,000

$

33,120,000

$

31,080,000

$

30,240,000

$

43,280,000

$

33,120,000

$

26,533,865

$ $

7,463,438 17,146,776

$ $

14,485,766 15,876,645

$

17,594,151

$

26,533,865

$

24,610,215

$

30,362,411

$

17,594,151

Year 5

$

$

45,640,000 720,000,000 (240,000,000) 1,005,640,000

$

20,698,703

$ $ $

395,431,037 (163,339,967) 252,789,772

Case Solutions

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