Corporate Finan

Ross, Westerfield, and Jaf
9th edition
Case Solutions
Input boxes in tan
Output boxes in yellow
Given data in blue
Calculations in red
Answers in green
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e Finance field. ct "Analysis ToolPak" . and Jaffe dition olutions s may require that led in Excel.

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558 121 2.792 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. general. and administrative Depreciation Operating income $ Other income EBIT $ Interest expense Pretax income $ Taxes Current Deferred Net income $ Retained earnings Dividends 742 $ $ 530 212 $ 1.539 $ 3.237 495 Output area: Operating cash flow Earnings before interest and taxes Depreciation -Current taxes Operating cash flow $ 786 (139) 647 2.Chapter 2 Cash Flows at Warf Computer.946 $ $ 386 109 4.946 $ $ $ $ $ $ 245 66 257 568 103 736 839 .338 508 454 Stockholders equity 2. plant.631 $ 2. and equipment Less accumulated depreciation Net property.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.792 159 647 Total liabilities and shareholders equity 2010 $ 2009 262 71 158 491 $ 212 756 968 $ $ $ 13 81 509 1.028 81 1.499 $ 2.280 $ 1.105 Net capital spending Acquisition of fixed assets Sale of fixed assets Capital spending Alternatively.154 Long-term liabilities Deferred taxes 2.858 543 159 1.219 $ 1. and equipment Intangible assets and others Total fixed assets $ $ $ $ $ Total assets $ 3.772 $ 1. Ending fixed assets -Beginning fixed assets Depreciation Capital spending $ $ $ $ $ $ 2.332 95 1.284 48 1. 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. Inc.038 Long-term debt 859 700 Total long-term liabilities 1.280 1.332 159 386 1.040 $ 13 80 499 1.844 2.

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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 .105 647 142 316 95 98 193 (118) 75 736 (756) 95 75 212 40 252 (11) 241 1.Net working capital cash flow Ending NWC Beginning NWC NWC cash flow Cash flow from assets OCF -Net capital spending -Change in NWC Cash flow from assets Cash flow to creditors Interest Retirement of debt Debt service Proceeds from sale of long-term debt Total Alternatively Beginning long-term debt Ending long-term debt Interest Total Cash flow to stockholders Dividends Repurchase of stock Cash to stockholders Proceeds from new stock issue Total 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) $ $ $ $ $ 728 586 142 1.

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800 12.562.078.615.461.937.990.000.000 3.000 $ $ 5.40 9.615.735.000 8.000 50.994.99% $ 184.000 23.200.310.018.000 Liabilities & Equity Current liabilities Accounts payable $ 6.70% 3) Retention ratio Sustainable growth rate Sales COGS Other expenses 0.000 $ 108.042.685.000 108.200 Dividends Add to RE $ $ 7.96 1.000 20% 30.000 14.000 19.009.946.460.22 30.651.000 5.000 Total CL $ 19.537.341.000 20.96 7.51% 11.000 117.964.000 .96 7.57% 22.374.000 Notes payable 13.880 $ $ Assets Current Assets Cash Accounts rec.725 Shareholder equity Common stock Retained earnings Total equity Total L&E $ 33.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 $ $ 167.44 1.473.910.320 5.539.224 21.000 Long-term debt Fixed assets Net PP&E $ Total assets $ Growth rate Minimum FA purchase $ 93.75 0.000 Output area: 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 0.000 6.000 5.136.54 19.615 129. Inventory Total CA $ $ 3.000 55.141.024.57 0.49 0.

200 17.345.600 7.140 Liabilities & Equity Current liabilities Accounts payable $ 7.729.090.568 6.280 16. Inventory Total CA $ $ 3.666 9.009.727.236 Notes payable 14.753.000 29.756.873.772.680 $ 116.680 Assets Current Assets Cash Accounts rec.735.363.324.200.019.680 61.286 Long-term debt Fixed assets Net PP&E $ 103.779 16.384.693.Depreciation EBIT Interest Taxable income Taxes (40%) Net income $ $ $ Dividends Add to RE $ 5.44 1.460.93 7.666 3.002 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 COGS Other expenses Depreciation EBIT Interest Taxable income Taxes (40%) Net income $ $ $ $ $ 5.000 55.870.490.99% 23.200 3.793 6.000 141.654.009.549.347.368 $ $ 3.552 6.166.000 26.594.200 Notes payable 15.446.200 Liabilities & Equity Current liabilities Accounts payable $ 7.200 10.748.114.460.600 Total CL $ 23.800 Shareholder equity $ 33.827.49 0.436.818.461.000 .581.78% 11.106.22 30.920 Assets Current Assets Cash Accounts rec.800 5.400 6.992. Inventory Total CA Total L&E 33.800 Long-term debt Fixed assets Net PP&E $ 200.57 0.882.968 EFN $ 3.96 8.54 19.000 23.295.000 23.735.46% $ Dividends Add to RE Shareholder equity Common stock Retained earnings Total equity $ $ 112.966 9.466 14.070.567.520 5.650.828 Total Assets $ 119.75 0.000 0.050 Total CL $ 21.90 1.199 8.492.000 26.

81% 123.995 3.000 25.650.200.993 6.492.800 Long-term debt Fixed assets Net PP&E $ 200. Inventory Total CA $ 5.368 $ 30.000.363.964.203.200.832 5) EFN if minimum FA purchase is $ Dividends Add to RE $ $ $ $ $ $ $ $ $ 118.368 61.979 10.545.203.009.988 Assets Current Assets Cash Accounts rec.000 7.992.000 56.221 9.995 61.540.992 15.200 Liabilities & Equity Current liabilities Accounts payable $ 7.378.979 3.083.338.959.964.753.400 6.581.200 EFN $ 23.577.000 56.800 7.158.567.358.026.735.029.000 141.446.200 Notes payable 15.000 EFN $ 11.777.795 .600 Total CL $ 23.000 $ $ 5.600 7.000 Total Assets $ 141.200 17.074.221 28.995 $ 118.000 Depreciation as a percentage of fixed assets New fixed assets New depreciation Sales COGS Other expenses Depreciation EBIT Interest Taxable income Taxes (40%) Net income Total L&E $ 123.168 5.044.772.405 Shareholder equity Common stock Retained earnings Total equity Total L&E $ 33.017.000 23.004.693.Common stock Retained earnings Total equity Total Assets $ 130.

00) .591.500 18.000 3.379. Current job Aftertax income $ 44.00 PV of bonus $ 12.18) Aftertax bonus $ 13.000 Discount rate 6.25 PV of attending Wilton $ 1.90 Aftertax salary $ 75.166.5% 29% $ $ 3.544.331.000 92.000 4% 31% $ $ $ $ 80.Chapter 4 The MBA Decision Input area: Current salary Years until retirement Salary increase Tax rate 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 $ 60.00 PV of salary in two years $ 1.000 2.927.60) PV of lost salary $ (82.010.804.000 110.800.943.00 Present value of salary $ 935.900.400.36 Mount Perry MBA PV of tuition & expenses $ (89.49 Wilton MBA PV of tuition & expenses $ (141.000 40 3% 26% $ $ $ $ 65.50% Output area: 3.000 20.000 4.000 3.500.283.68 Value of salary today $ 1.

300.00 Aftertax salary $ 65. Current job PV minus bonus after Wilton costs .146.263.000.421.690.671.320.896.PV of lost salary $ (41.10 5.56 $ 1.00 PV of salary in one year $ 1.54 Pretax beginning salary $ 79.37 Value in 2 years $ 1.34 Aftertax beginning salary $ 54.14) PV of signing bonus $ 12.70 PV of attending Mt.46 PV of salary today $ 1.462.254.373. Perry $ 1.691.583.611.

D9:D17)+D8 .000 95.D19.000.000.141.73% =IRR(D8:D17) -48.000 130.000.000.Chapter 5 Bullock Gold Mining Input area: Year 0 1 2 3 4 5 6 7 8 9 $ $ $ $ $ $ $ $ $ $ Required return Cash flow (400.000 (95.93% =IRR(D8:D17.000.000 180.000) 12% Output area: Payback period 3.47 IRR IRR 23.31 =NPV(D19.D9:D17)/-D8 $ 171.000 90.D19) Profitability index NPV 1.-0.294.000 195.000.000.000.000) 85.21% =MIRR(D8:D17.000 140.43 =NPV(D19.000.000.000 60.99) MIRR 16.

800.000 6.50% $4.000.000 63.50% 12.000 10.50% 17.000 7.000 $ 63.000.000.500.000 $ $ Year 2 47.000 16.000 $2.300.800.915.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) $ Year 1 47.700.000 730.000 $ .000.000 $95 $90 $31 14.000 20.000) (7.000 $7.915.000 680.300.000 $ 68.000 $ $ Year 3 47.200.000) ($94.000 620.000 68.200.000 5% 38% 12% Output area: Time 0 cash flow Equipment Land NWC Total Sales Contract Spot Total Sales $ (85.300.000.700.000 $ 58.500.500.000 590.30% 24.000 500.500.000 58.000) (2.200.700.

500 $ $ $ $ 22.020.500 12.000 $ 52.900 $ MV BV Taxes Salvage CF $ Time 0 1 2 3 4 5 6 Profitability index Average accounting return IRR IRR MIRR NPV $ Cash flow (94.777.185.000) $ 21.000 $ 37.000) (4.027.472.520.000 14.395.000 26.845.155.100 10.697.000 $ 51.155.300.000 4.100 16.915.080.64% 14.900 Book value $ 72.93% $ 16.500 14.300 (1.912.912.364.000 31.000 20.900 20.000 10.79% 19.239.1736 20.000 8.000) 1.000 $ 3.495.900 68.597.410.915.500 $ 31.981.600 Salvage 2.000 (270.000 $ 3.000) $ 3.000 2.000 (9.030.300.630.869.000.825.650.000) 25.875.410.648.000 (225.182.846.185.000 12.000 26.400) 41.875.900 3.000 17.000 630.625.000 $ $ Beginning NWC Ending NWC NWC cash flow $ Total cash flow $ 25.736.869.000 26.000 31.446.446.900 $ 31.780.01% -74.671.67 .825.300.302.145.900 31.900 14.220.000 4.000 4.VC FC Dep EBT Tax NI + Dep OCF $ $ $ 19.500 31.000 22.000 6.

000 $ 55.Year 4 $ 47.000 Year 5 Year 6 .000 $ 55.100.000 8.600.500.600.

283.650.506.000 8.700 $ 2.18.000 $ 2.780.300.000 10.780.800.000 $ 22.878.700 10.000) $ (4.000) $ (4.000 $ 7.064.000) (2.000 $ 24.000) $ 27.000 $ 2.736.000) (1.625.290.385.800.000) $ (7.503.520.000) $ (1.700 $ 26.625.300 $ 13.000 $ - $ - .000 4.000) $ (1.500.650.000 $ (2.736.850.500.

000 38.50% 12.000.151.112 84.000 1.740 40.350 2.51 $ 6.712.632.740.588 24.848.806 $ $ $ 104.870.391.592.080.000 1.92 $ 14.28% 4.000 22.684.213 73.848 60.883.960.000 2.000 2.Chapter 6 Goodweek Tires.534.985. Inc.942.000 54.209.00 $ 5.50% $ $ 38 22 5.000 66.030.600.83 $ 14.000 15% Output area: Nominal price increase Nominal VC increase 4.000 78.390 188.000.142.000 2.208 .000 5.068 $ 57.000 40.000.456 85.152 168.024.000 22.94 $ $ $ $ 93.600.000.694 26.916 69.588.000 59.30% 24.90 $ 14.400 60.161.000.500 23.50% 17.000 24.000 140.000 2.122.188.50% 11.458 77.120.464.640.00% $ $ 1% 1% 26.091.459 41.026.565.280.290.553 64.28% Year 0 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 Variable costs: OEM market Replacement market Total Year 1 Year 2 Year 3 Year 4 $ 5.148.525.000 2.00% 8.635.653.000 159.165 87.24 $ 5.717 $ $ $ 110.000.165.876.000 14.000.856.000 $ $ $ 99.00% $ $ 59 22 14.600 39.912 1.248 62.00% 3.00 $ 14.171.043 26.975 178.186.000 $ 54.000.90% 9.25% 15.600 1. 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 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 $ $ $ $ 10.208.400.261 25.188 $ 59.

684.000.180.680.956.848 87.906.354.387.345.550.113.011.986.967.547 $ (1.178 $ 119.680.917.610 $ 26.926.810) 46.803 24.205 49.000) $ Discounted cash flow $ (149.937.068 84.000) $ NPV IRR Profitability index $ 9.956.357 48.845.600 $ 22.178 26.000.424.020.000.400 $ Year 2 48.616 50.712.446.568) $ 26.800 (14.800) $ 23.300.332.050.941 30.017.128.35% 1.008 16.366.357 $ Year 3 49.978.032.000 $ 43.357 $ $ $ $ 178.000) (9.406.026.151.724.205 $ 54.262 9.024.872.463 24.905 14.0633 (14.188 85.000 13.810) $ 25.517.717.926.000.903 $ (1.956.000.703 $ $ Year 4 50.302.618.806 26.980.345.000 (9.400 $ (140.872.969.610 (1.000 (4.280 17.616 $ 9.717 27.794 70.517.000 $ $ $ $ $ 168.800) 25.000 40.302.000.844.000.848.000 78.422 .800 $ 25.000 23.000 $ 85.332.000) $ 140.000 $ 23.178 127.171.000 Year 0 Operating cash flow Capital spending Net working capital Total cash flows 159.421.724.81 18.Revenue Variable costs Marketing and general costs Depreciation EBT Tax Net income OCF $ $ $ $ New working capital: Beginning Ending NWC cash flow $ Book value of equipment $ Aftertax salvage value: Market value Taxes Total $ $ 0 $ 9.161.000 55.000 26.724.000.500.205 $ $ $ 188.568) 47.956.050.600 20.616 49.744 33.637 $ 34.400 40.000.000.500.628.421.592.000 34.000 26.178 (1.029.000) (149.208 28.000 $ 61.000 34.000 $ Year 1 40.000) 49.724.000 20.360 22.

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000 1.4 17.269.000.250 8.663 PV of first harvest $ 4.000 Harvest (MBF) per acre 14.681.194.000 20 660 630 620 1.229.125.588 15.20% Output area: Real required return Cash flow from thinning 6.1 16.3 18.Chapter 7 Bunyan Lumber. and will reoccur at this same interval.70% 35% $ 250.000 3.000 725.500.250 9.870.08% $ Harvest in 5.525.1 $ $ 5% 140 50 $ 18 $ $ $ $ 150 300 145 225 Nominal required return Inflation rate Tax rate Conservation fund Conservation fund growth 1P 16% 20% 22% 24% 2P 36% 40% 43% 45% 10.200.000 750.00% 3. LLC Input area: Total acreage Years since original planting 1P pond value 2P pond value 3P pond value Cash flow/acre from thinning Years from today for harvest to begin 20 25 30 35 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 $ $ $ $ 5.000 23.000 1. 958.87% 3P 48% 40% 35% 31% .59% 1183.430.788 $ Next thinning will occur in The effective real interest rate for this period is The real rate in the conservation fund is The effective real interest rate for the conservation fund for this period is 40 years.000 3.17% 6.000 20 years Revenue Tractor cost Road Sale preparation & admin Excavator piling Broadcast burning Site preparation Planting costs EBIT Taxes Net income (OCF) $ $ 42.000 1.

Aftertax cost of convservation $ Value of conservation at harvest $ PV of future thinnings PV of future harvests PV of conservation fund $ $ $ Total NPV $ Harvest in (162.986.000 28.325. and will reoccur at this same interval. The effective real interest rate for this period is 1808.000 29.367. and will reoccur at this same interval.500.941.473.51 (49.238 $ years Next thinning will occur in 50 years.226.000 1.00) (176.993 12.251.46 316.087.825.476.24% Value of conservation at harvest $ (169.993 10.000 1.456.110.000 725.182.209.316.67) PV of future thinnings PV of future harvests PV of conservation fund $ $ $ Total NPV $ Harvest in 378.22) 521.60 (24.800 9.476.000 1.000 750.80 488.11% The effective real interest rate for the conservation fund for this period is 1666. The effective real interest rate for this period is 1321.52% The effective real interest rate for the conservation fund for this period is 2330.52) 5.480.249.046.38% Value of conservation at harvest $ (172.37 (34.100.445 PV of first harvest $ 3.125.59 .000 4.837.076.880 18.547 19.643.27) 4.232.800 11.000 750.177.36 25 Revenue Tractor cost Road Sale preparation & admin Excavator piling Broadcast burning Site preparation Planting costs EBIT Taxes Net income (OCF) $ $ 49.464 $ years Next thinning will occur in 45 years.53) PV of future thinnings PV of future harvests PV of conservation fund $ $ $ Total NPV $ 276.615.500.920 PV of first harvest $ 4.000 1.826.469.34 183.557.125.024.000 1.85 30 Revenue Tractor cost Road Sale preparation & admin Excavator piling Broadcast burning Site preparation Planting costs EBIT Taxes Net income (OCF) $ $ 52.000 1.500.751.932.470.89) 3.000 4.202.000 725.

97 105.233 $ years Next thinning will occur in 55 years.629.60% Value of conservation at harvest $ (167.286 PV of first harvest $ 2.057.516. The effective real interest rate for this period is 2463.125.606.000 31.950.462 20. and will reoccur at this same interval.500.670.10% The effective real interest rate for the conservation fund for this period is 3243.748 11.000 1.509.96 (17.748 12.592.000 1.897.525.000 1.535.Harvest in 35 Revenue Tractor cost Road Sale preparation & admin Excavator piling Broadcast burning Site preparation Planting costs EBIT Taxes Net income (OCF) $ $ 54.089.000 725.08 .87) PV of future thinnings PV of future harvests PV of conservation fund $ $ $ Total NPV $ 202.88) 2.000 750.000 4.810.995.

950.000 Price of zero coupon bond # of zeroes needed $ 229.50% 40.61) Cash outflow Cash inflow During the life of a bond.544.000.34 174.52 $ (1.000 Coupon rate Tax rate 7.60% 9.000 Repayment of zeroes $ 174.000 Value of zero in one year Zero coupon growth Zero coupon bond $ 246.10% Output area: 2) Price of coupon bond # of coupon bonds needed $ 1.86 $ 17.000.000 1.40% 5.413. .413 3) Repayment of coupon bonds $ 40.50% 35% Year bond is called Spread above Treasury Treasury rate at call Treasury rate at call 7 0.000. the zero generates cash inflows to the firm in the form of the interest tax shield of debt.069.000 40.000 4) Year 1 interest payments: Pretax coupon payment Aftertax coupon payment $ $ 3.Chapter 8 Financing East Coast Yachts Expansion Plans with a Bond Issue Input area: Years to maturity Required return Amount needed Face value $ $ 20 7.000 1.

134.5) Make whole price $ 1.47 .08 Make whole price $ 852.

a Bond Issue .

99% 58.073.74 Ragan PE (revised assumption) 7.40 13.97 1.85 3) Industry PE 12.00% 14.97 $ 44.91 $ ROE 11.08 320.82 1. Bon Voyage Marine.00% R 14.752.01% 14.524.64 $ 1.024.50% 732.326.00% 18.19 12. Inc.00% 17.826.808.41 Stock price 15.54 0.00% 19.00% .76 11. Nautilus Marine Engines Industry average $ Nautilus EPS w/o write-off $ $ 150.78 Value per share $ 36.16 0.49 23.660.598.41 29.075.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 $ $ Blue Ribband Motors Corp.09 $ 1.000 25% 20% EPS 1.23 960.00% 13.00 41.619.32) 0.02 Ragan PE (original assumption) 8.16 (0.53 0.808.21% $ $ $ $ $ $ Total dividends 732.85% 9.000.00% 14.05 $ 16.07 DPS 0.375.42 $ 1.056.259.000 5.97 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 $ $ $ 1.15% 70.40 839.968.15 1.25 Stock price implied by industry PE $ 61.37 Stock value in Year 5 Total stock value today $ $ 17.100.

92% 5) ROE 15.705.88 Percentage not attributable to growth opportunities 81.524.88% .4) Total earnings Cash cow value $ 1.000.00 $ 8.08% Percentage attributable to growth opportunities 18.964.

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Chapter 10
A Job at East Coast Yachts
Input area:

Bledsoe S&P 500 Index Fund
Bledsoe Small-Cap Fund
Bledsoe Large Company Stock Fund
Bledsoe Bond Fund
Risk-free rate (historic)
Company stock expected return
Company stock standard deviation

10-year annual
8.45%
13.45%
8.62%
6.25%
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

Standard deviation
21.85%
24.83%
22.93%
9.20%

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
8.62%
6.25%
3.80%

Correlation

Standard deviation
22.93%
9.20%

0.15

Output area:

Weight 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%

Dominant portfolio:
Weight of stock fund
Weight of bond fund
Standard deviation
Expected return

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%

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
Portfolio Expected Return

10.00%
8.00%

Portfolio Expected Return

8.00%
6.00%
4.00%
2.00%

0.00%
0.00%

5.00%

10.00%

15.00%

Portfolio Standard Deviation

20.00%

25.00%

266304 Adjustable Cells Cell Name $D$45 Weight of large cap stock fund Portfolio E(R) Original Value Final Value 0.0 Answer Report Worksheet: [Jaffe 9th edition Case Solutions.54% Constraints NONE Final Value 0.00% 22.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 0.317133 .Microsoft Excel 12.

6 -1.95 1.03 $ 62.20 $ 76.77 -2.84 $ 65.77 -0.44 1.3 1.55 $ 32.72 4.59 $ 64.49 -1.31 0.22 -3 -0.85 -2.43 0.12 2.66 0.98 $ 31.27 0.68 $ 65.08 0.91 $ 27.85 1.54 0.74 -1.73 $ 31.22 1.04 3.51 1.60 $ 32.72 $ 62.10 $ 71.94 -3.89 $ 63.9 0.07 2.49 -1.29 0.66 -0.37 0.31 1.64 $ 72.27 $ 23.19 $ 25.67 -0.76 -1.52 $ 67.49 0.45 $ 26.15 0.76 $ 27.21 $ 67.35 2.92 $ 61.21 0.65 -1.79 $ 23.84 -0.31 $ 29.11 $ 23.06 $ 29.67 3.37 -0.73 0.49 $ 63.49 4.42 0.82 2.18 -0.11 0.75 0.06 0.13 $ 34.35 $ 73.01 -1.40 $ 27.41 0.33 -0.08 -3.95 1.24 $ 23.87 0.36 -2.89 0.55 $ 65.16 0.39 0.8 -1.32 0.5 1.9 -2.25 -1.08 0.20 $ 64.5 1.16 0.92 $ 61.41 $ 33.3 0.07 $ 61.Chapter 12 The Fama-French Multi-Factor Model and Mutual Fund Returns 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 2.1 0.51 3.41 0.05 $ 31.16 1.83 $ 63.35 $ 30.53 -0.52 2.11 $ 23.2 1.82 0.71 -0.11 0.4 -0.44 -0.30 $ 28.06 0.09 1.67 4.16 -2.95 2.23 -0.01 $ 33.96 $ 74.43 $ 66.17 $ 28.95 3.76 0.53 -0.05 0.4 0.23 0.65 FLPSX Adj Close $ 22.11 -1.07 0.11 0.21 0.49 0.56 2.18 -1.90 $ 72.03 3.35 0.50 $ 23.09 -0.11 $ 29.87 $ 68.66 -0.58 2.47 -3.09 0.25 -3.08 $ 29.24 $ 75.68 0.36 $ 70.36 0.64 $ 62.40 $ 60.47 1.84 $ 62.4 0.99 -0.54 3.35 3.34 0.31 3.75 1.11 0.82 -1.16 0.80 $ 31.59 $ 74.20 $ 24.82 $ 23.67 $ 66.73 $ 68.79 $ 72.42 1.24 0.16 2.42 FMAGX Adj Close $ 62.96 -0.45 $ 26.71 $ 76.92 4.7 1.69 -0.37 -3.01 2.90 $ 27.35 2.84 $ 31.03 $ 29.59 $ 70.55 0.51 -1.24 0.33 $ 69.24 1.12 $ 24.59 2.73 3.30 $ 24.51 .88 -0.47 5.13 0.

0288 0.39 -0.0135 0.32 0.88 -0.37 37.0041 -0.2 -2.84 84.05 -3.40 34.0253 -0.06 -0.66 -0.23 -1.23 38.0340 -0.67 62.0166 0.30 90.0250 0.37 -3.93 0.0099 0.26 -5.0138 0.0180 -0.21 -8.0260 -0.2 -2.33 -1.09 -2.5 -1.89 3.06 -0.0628 0.07 29.34 36.54 2.0295 0.0012 0.78 0.8 0.72 0.0001 -0.0399 0.200612 200701 200702 200703 200704 200705 200706 200707 200708 200709 200710 200711 200712 200801 200802 200803 200804 200805 200806 200807 200808 200809 200810 200811 200812 0.27 0.0031 0.0116 -0.17 0.13 0.0336 SMB 0.1 -1.0018 Risk premium for mutual funds HML FMAGX FLPSX BSCFX 0.42 0.18 79.0382 0.03 -1.48 82.0014 -0.04 36.0208 -0.0682 -0.46 0.56 0 0.0035 0.12 Output area: 200401 200402 200403 200404 200405 200406 200407 200408 200409 200410 200411 200412 Mkt-RF 0.77 2.4 0.52 84.02 1.86 3.69 38.42 -2.17 0.05 0.0265 -0.20 32.0401 -0.17 79.0196 0.14 36.24 78.0120 0.47 36.44 0.47 0.0143 0.08 -0.0156 0.3 -0.0140 0.0358 -0.0382 -0.0113 0.0169 -0.41 0.17 0.34 0.90 89.0054 -0.37 33.0126 0.14 35.43 0.0467 0.13 0.0368 0.0411 0.0264 -0.06 -0.69 -2.33 38.08 -0.65 4.44 36.88 -3.55 -8.50 81.31 -1.7 -6.94 2.0195 0.0386 0.0136 0.57 1.0317 0.44 35.48 -1.09 2.12 0.74 3.0135 0.22 4.44 0.4 0.32 0.0282 0.0600 .40 84.0149 -0.44 -2.0082 0.07 -3.73 76.0172 0.09 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 76.72 45.74 -0.58 0.21 0.6 2.0185 -0.0264 0.33 21.21 34.0174 0.86 90.06 33.26 0.0095 0.27 -0.0224 0.29 23.87 -1.14 -5.68 1.0442 -0.97 -0.0049 0.0037 0.86 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 35.0783 0.89 49.94 83.74 33.02 0.06 37.93 3.63 36.07 -2.17 0.0020 0.14 77.61 82.09 -1.01 -2.0387 0.0016 0.15 0.87 76.0277 -0.43 77.98 -9.91 3.4 0.38 0.67 0.02 3.0122 0.78 81.17 23.76 -0.0167 0.04 0.08 0.57 35.21 0.32 0.0004 0.0251 0.11 93.0040 0.58 87.96 -18.46 4.30 43.0225 -0.0007 0.55 3.15 0.

0635 0.0190 -0.0137 -0.0040 0.0110 0.0210 -0.0527 -0.0160 -0.0131 -0.0003 0.0413 0.0047 -0.0164 0.0007 -0.0252 0.0154 0.0156 0.0105 0.0049 0.0066 0.0161 -0.0289 0.0065 -0.0177 0.0289 -0.0233 -0.0175 0.0040 0.0102 -0.0070 0.0284 -0.0155 -0.0173 -0.0144 0.0171 -0.0098 -0.0352 0.0366 -0.0123 -0.0009 -0.0644 -0.0611 -0.0088 -0.0026 0.0188 -0.0202 0.0408 -0.0358 0.0086 0.0348 -0.0047 -0.0080 -0.0243 -0.0222 0.0142 0.0076 -0.0228 0.0165 0.0448 0.0092 0.0344 -0.0047 0.0378 -0.0357 0.0889 -0.0025 0.0060 -0.0042 -0.0032 0.0069 -0.0067 0.0232 0.0218 -0.0151 0.0068 0.0042 0.0235 0.0150 -0.0088 -0.0256 0.0242 -0.0113 0.0149 0.0275 0.0031 -0.0450 0.0361 -0.0122 0.0307 0.0258 0.0070 -0.0972 0.0195 0.0087 -0.0297 -0.0142 0.0183 0.0209 0.0167 -0.0047 0.0091 0.0055 0.0414 0.0389 0.0166 -0.0020 -0.0272 0.0333 -0.0294 0.0160 0.0521 -0.0178 0.0247 0.0143 0.0395 0.0088 -0.0377 0.0005 0.0301 -0.0076 0.0351 -0.0313 0.0020 -0.0430 -0.0018 0.0123 0.0158 0.0461 0.0803 -0.0049 0.0139 -0.0495 0.0122 0.0094 -0.0118 -0.0265 -0.0199 0.0054 0.0154 0.0236 0.0146 0.0089 -0.0105 0.0076 -0.0130 -0.0622 -0.0093 0.0082 -0.0416 -0.0373 0.0442 -0.0916 -0.0221 -0.0006 -0.0477 0.0154 0.0211 -0.0030 0.0305 0.200501 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 -0.0206 -0.0020 -0.0285 0.0226 -0.0854 -0.0273 0.0330 0.0437 0.0181 0.0245 0.0099 -0.0145 0.0039 0.0345 -0.0122 -0.0093 0.0366 0.0390 0.0375 0.0171 -0.0280 0.0213 0.0074 0.0638 0.0301 0.0501 -0.0953 -0.0203 0.0366 -0.0002 0.0089 0.0491 0.0004 0.0494 0.0031 0.0466 0.0637 -0.0536 0.0079 0.0168 0.0355 0.0044 -0.0355 0.0107 -0.0133 -0.0074 -0.0302 -0.0282 0.0409 -0.0004 0.0325 -0.0049 -0.0051 0.0269 .0658 0.0488 0.0686 0.0251 0.0165 -0.0277 -0.0468 0.0589 0.0519 -0.0116 0.0197 -0.0443 -0.0226 -0.0280 0.0486 -0.0300 -0.0097 0.0059 0.0077 -0.0231 0.0273 -0.0284 0.0274 -0.0070 -0.0002 0.0093 0.0199 0.0112 -0.0031 -0.0531 -0.0078 -0.0309 0.0353 -0.0336 -0.0219 0.0030 -0.0007 -0.0300 -0.0219 -0.0023 -0.0074 0.0000 0.0351 -0.0108 -0.0114 -0.0369 -0.0008 -0.0302 -0.0050 0.0511 0.0533 -0.

0480 -0.2169 -0.1042 -0.0570 .0509 200812 0.0876 0.1855 -0.0996 -0.1134 0.0854 -0.1949 -0.0121 -0.0205 -0.0346 -0.2010 -0.0851 -0.1070 0.1812 -0.200809 -0.1194 -0.0206 0.0437 200810 -0.0020 0.0409 -0.0314 200811 -0.

91 $ 19.59 $ 17.48 $ 17.57 $ 17.Fund Returns BSCFX Adj Close $ 14.48 $ 14.67 $ 16.10 $ 18.79 $ 19.67 $ 19.90 $ 15.30 $ 21.53 $ 21.12 .03 $ 15.34 $ 20.58 $ 18.69 $ 14.27 $ 19.65 $ 18.74 $ 17.88 $ 15.88 $ 17.50 $ 18.39 $ 17.11 $ 19.44 $ 15.72 $ 14.41 $ 20.49 $ 16.40 $ 18.94 $ 15.40 $ 14.88 $ 15.38 $ 18.22 $ 21.06 $ 20.

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 21.31 20.50 22.27 20.09 24.83 21.32 22.84 18.14 22.49 22.07 13.18 20.99 22.61 20.70 15.62 22.47 23.15 21.78 25.58 21.69 23.43 23.46 14.24 .84 20.60 23.

.

.

03505436 -0.35628371 0.93941 Adjusted R Square 0.0% -0.00481439 0.00185551 1.00896533 0.SUMMARY OUTPUT Regression Statistics Multiple R 0.08242486 -0.57795205 -4.09783623 3 56 59 F Significance F 289.18211325 Lower 95.7395E-34 P-value 0.7026E-34 0.14796951 MS 0.13900418 0.04505004 -0.04633473 0.37798007 4.53045418 .29517932 -0.00481439 1.23051197 0.08694435 t Stat -0.419805 4.00147944 0.01265 Observations 60 ANOVA df Regression Residual Total Intercept Mkt-RF SMB HML SS 0.00166478 1.00013585 Lower 95% Upper 95% -0.32075805 -0.88867336 27.29517932 0.96923 R Square 0.93617 Standard Error 0.13006248 0.53045418 -0.0001601 Coefficients Standard Error -0.14026588 1.12020937 0.14026588 -0.3143341 -1.

0% 0.Upper 95.00185551 1.18211325 .32075805 0.03505436 -0.

00467117 -0.32268708 0.07665805 4.3607E-05 0.00156955 0.31266842 -0.01372039 1.0823834 0.07960131 .00153208 0.08086133 1.1912E-34 P-value Lower 95% Upper 95% Lower 95.07960131 0.93790 Standard Error 0.00775471 0.94106 Adjusted R Square 0.0% 0.97008 R Square 0.6288E-32 0.47625161 0.16912256 0.035876 2.13136439 0.01177 Observations 60 ANOVA df Regression Residual Total Intercept Mkt-RF SMB HML 3 56 59 SS 0.20943515 0.96350027 9.24436812 -0.31507618 -0.00013848 Coefficients Standard Error t Stat 0.SUMMARY OUTPUT Regression Statistics Multiple R 0.9994946 0.16912256 0.13156798 MS 0.04127109 0.0015483 1.96350027 1.0188232 F Significance F 298.04189814 24.12381327 0.04743233 0.00153208 4.

0% 0.00467117 1.13136439 0.Upper 95.24436812 .47625161 0.

01874 Observations 60 ANOVA df Regression Residual Total Intercept Mkt-RF SMB HML 3 56 59 SS 0.12205937 3.17889854 0.06004154 F Significance F 125.91161561 1.108005 8.04525708 0.91161561 0.87017 Adjusted R Square 0.0% 0.86321 Standard Error 0.22117681 0.71020538 0.00731323 -0.46569109 0.0028145 0.15142854 MS 0.06671263 15.13176815 0.00212408 0.9677E-22 0.04392272 0.00706267 -0.52315603 .22117681 0.04405317 -0.00035108 Coefficients Standard Error t Stat 0.86159383 1.SUMMARY OUTPUT Regression Statistics Multiple R 0.6680527 0.0028145 3.52315603 -0.01966039 0.39258546 -0.0024653 0.93283 R Square 0.26523463 0.8152836 -0.4617E-25 P-value Lower 95% Upper 95% Lower 95.12875208 -2.00034173 0.

00731323 .Upper 95.17889854 0.00706267 1.71020538 -0.0% 0.

851 2.124% 35% $ $ $ $ $ $ Output area: 2) RE from CAPM 3) Company Apple Inc. Dell Hewlett Packard Sun Microsystems Ingram Mico Inc.672 7.139 11.410 0.106 6.19 1.221% 500 92.97% Beta 1.18 1.28 1. Electronics for Imaging 9.725 8.367 6. Tech Data Corp.94 1.811% 300 91.20 1. Inc.00% 100.949% 400 80.40 .92 1.254% 1.Chapter 13 The Cost of Capital for Goff Computer.433 5.41 1. 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 94.10% 7.87 1.

9497 23.3526 WACC using book value 8. Inc.89 1.28 300 0. Digi International Agilysis.800 $ 1.28 1.22 1. Rackable Systems.33 500 0.48 RE with industry beta 10.00 4.62 1.87 1. SeaChange International MIPS Technologies Silicon Graphics Cray Inc.07% WACC using market value 9.1497 21.60% billion billion million million .Palm.84 1. Industry Average 2.62 1. Inc.7280 5.44% 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 0.17 400 0. Inc.62 0.16 0.

.

35 6.811% 91.08% .65 1.35% 1.17 7.221% 92.28 6.900 0.202 0.32% 1.725 322.367 $ 566.Quoted Market value Percent Yield to price (millions) of total Maturity 94.89% 1.949% 80.20 8.17% 1.64% 7.530 0.254% $ 1.12% Market values 2.672 275.83% 7.07% 1.016 0.106 460.00 Book values 2.93% 1.624.

Assets Total assets 3.500.98 1.000 $ $ 8.000 7.200.700.593 $ $ 60.700.700.500. Porque ele costo de esa fuente es menor $ c) Cash Old assets NPV of project Total assets Total 5 $ $ $ Equity Total Debt & Equity $ $ 532.000 12.98 d) PV of the project $ 67.000 Equity Total Debt & Equity $ $ 599.700.000 539.400.000 623.000.000 $ .000 $ 601.000 7.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: 2.700.000 67.700.500.500.000 Old assets PV of project Total assets $ $ 532.500.000 539.700.000 $ 35. 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.000 Equity Total Debt & Equity $ $ 539.000 14.500.700.000 623.593 35.00% 70% 40% $ $ 532.000 $ 16.000 b) Value unlevered Tax shield Total assets $ $ 599.000 35.000 Debt Equity Total Debt & Equity $ 60.000 7.500.50 60.000 532.000 563.58 New shares outstanding New share price 4.667. a) Aftertax earnings increase NPV b) Assets NPV of project Total assets New share price New shares issued Price 15.000 New stock price $ 37.700.000 Equity Total Debt & Equity $ $ 599.200.50% 8..000 $ 532.000 599.000 599.000.200.700.000.700.620.200.000.000 532.000 599.700.000.700.200.000 532.000 24.000 599.000.667.

000 $ $ 34.000.000 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 $ $ $ 1.50 $ 0.700.800.000 $ 600.000.000 35.000 51.000.000 $ $ 36.000 .000 8.Chapter 17 McKenzie Corporation's Capital Budgeting Input Area: Recession Normal Expansion Probability 0.000.000 $ $ $ Without expansion 30.000 34.400.000.000.700.000 Expected value of equity $ 3.900.000.000 34.000 17.20 $ Without expansion 30.000.000 45.30 $ 0.000 $ 32.000.000 Bondholder gain with expansion $ 900.

000 (300.100.000) .Stockholder gain with expansion $ Stockholder NPV $ 8.

$ $ $ With expansion 33.000.000.000 .000 34.000.700.000.000 With expansion $ $ $ 12.000 30.000.000 $ $ $ With expansion 33.000 $ 33.000 64.000.000 34.000.000 $ 12.000 46.000.000.

.

00 1.00 738.583.17 Interest tax shield $ 592.00 397.00% 40.00 $ 2.40 546.00 $ 1.60 $ $ 613.80 572.00% 12.534 $ 1.180.60 $ 819.50% 25.366.00 562.00 776.00 $ 2.00 $ 741.50% 8.236.115.00 PV unlevered CF $ 4.00% 167 Output area: 1) 2) Unlevered cash flows $ 2.60 Sales Costs Depreciation EBT Tax Net income $ Capital expenditures Change in NWC Asset sales $ $ $ 215 $ (94) $ 1. Input area: 2010 2011 2012 2.371.60 $ 920.092 $ Interest payments $ 1.00 494.430 $ 1.11 Value today of terminal value $ 4.555.60 3.977.00 413.928.00% 14.482 $ $ 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 1.00 .00 373.00 $ 1.052.Chapter 18 The Leveraged Buyout of Cheek Products.00 472.50 Terminal value of future unlevered CF in Year 5 $ 9. Inc.40 708.886.

36% Terminal value of company $ 10.471.67 $ 2.12 .14 Terminal value of tax shields $ 622.205.126.41 Share price to offer $ 74.3) PV of interest tax shield $ Levered equity return WACC 4) 2.18 PV unlevered CF PV tax shields Value of company $ 9.20% 13.905.03 Value of terminal tax shields today $ 345.55 15.377.73 $ 12.

00 $ 1.738.00 884.2013 2014 $ 2.616.80 $ 805.00 434.20 $ 598.343.20 $ $ 237 73 $ $ 234 83 $ 1.412.547 $ 929.80 $ 847.00 537.80 .80 $ 972.495 $ 1.00 $ 1.00 $ 618.20 564.00 $ 2.00 839.00 442.

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000 75.500.500 Net amount raised $ 65.000 15.000 Underwriter fees $ 4.000.000 Total fees excluding underwriter fees $ 2.000 300.000 8.00% 1.500 Total fees $ 7.143.500 525.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 $ $ $ $ $ $ $ $ $ 7.000 100.000 70.100.900.000 Output area: Fee as a percentage of funds raised 10.243.000 20.97% .

148 0.500.15% Year 0 2.000 Saved purchase Lost salvage value Lost depreciation tax shield Security deposit Lease payment Tax on lease payment Cash flow from leasing $ $ (150.000 150.927.000) 227.57 $ 557.000 11% 35% 1.444 0.375) (650.500.000 650.500 $ NAL $ 22.150.333 0.000 2) Book value in Year 2 Saved purchase Lost salvage value Year 1 (291.074 300.500.917.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 Alternative lease: Lease payments Year 2 salvage value $ $ $ $ $ $ 2.000.500 $ Year 0 2.000) 227.500 (713.500 1.000) (650.000 0.000 1.000 Output area: 1) Aftertax cost of debt 7.875) Year 1 .

186.04 .Lost depreciation tax shield Lease payment Tax on lease payment Cash flow from leasing $ NAL $ PV of lease payments (291.375) (1.500 402.533.875) (291.150.500 1.000) 402.500 $ (1.752.036.150.038.000) (1.21) $2.

000) $ (650.500) (129.000) 227.500 (811.000) (64.750) 150.125) .000 (650.000) 227.500 (552.750) Year 2 (845.000) $ (109.puters $ Year 2 Year 3 Year 4 (388.500) (195.

500) $ (1.233.(388.625) .

82% Output Area: d1 0.4138) N(d1) 0.1435 d2 (0.55 .3395 Call $ 9.5571 N(d2) 0.Chapter 22 Clissold Industries Options Input Area: Current stock price $ Exercise price $ Expiration (months) Risk-free rate Standard deviation 50 55 6 4% 78.

59% 144.80% Constraints NONE Final Value $ 27.Microsoft Excel 12.65 .48 Adjustable Cells Cell Name $D$11 Standard deviation Original Value Final Value 78.0 Answer Report Worksheet: [Jaffe 9th edition Case Solutions.xlsx]Chapter 22 Report Created: 1/12/2009 1:16:40 PM Target Cell (Value Of) Cell Name $D$22 Call Original Value $ 22.

45 .0 Answer Report Worksheet: [Jaffe 9th edition Case Solutions.Microsoft Excel 12.xlsx]Chapter 22 Report Created: 1/12/2009 1:17:37 PM Target Cell (Value Of) Cell Name $D$22 Call Original Value $ 23.80% 109.42% Constraints NONE Final Value $ 19.30 Adjustable Cells Cell Name $D$11 Standard deviation Original Value Final Value 144.

95 .41 Adjustable Cells Cell Name $D$11 Standard deviation Original Value Final Value 109.0 Answer Report Worksheet: [Jaffe 9th edition Case Solutions.16% Constraints NONE Final Value $ 11.xlsx]Chapter 22 Report Created: 1/12/2009 1:18:12 PM Target Cell (Value Of) Cell Name $D$22 Call Original Value $ 15.Microsoft Excel 12.42% 83.

xlsx]Chapter 22 Report Created: 1/12/2009 1:18:43 PM Target Cell (Value Of) Cell Name $D$22 Call Original Value $ 10.Microsoft Excel 12.0 Answer Report Worksheet: [Jaffe 9th edition Case Solutions.82% Constraints NONE Final Value $ 9.16% 78.55 .16 Adjustable Cells Cell Name $D$11 Standard deviation Original Value Final Value 83.

40% 60.89 .28 40 10 4.1291 d2 (0.7682) N(d1) 0.00% Output Area: d1 1.2212 Call $ 25.8706 N(d2) 0.Chapter 23 Exotic Cuisine Employee Stock Options Input Area: Current stock price Exercise price Expiration (years) Risk-free rate Standard deviation $ $ 36.

00 6% 800 7% Output area: Stock price $ Intrinsic bond value $ 893.00 25.00 20.50 1.60 25.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 $ $ $ $ 12.00% $ 106.22 Floor value $ 893.22 Conversion ratio Conversion premium Option value 20.78 .00 32.

97 5) Mortgage value $ 534.04 4) Mortgage value $ 460. Input area: Mortgage value Years Interest rate $ 4) Interest rate 5) Interest rate 500.071.376.Chapter 25 Williamson Mortgage. Inc.40% 5.80% Output area: 1) Mortgage payment $ 3.000 25 6.50% 7.892.83 .

998.00 $ 323.532.000 $ 821.00) $ Q4 558.000 $ Q3 817.00% $ $ $ $ 793.740.00 857.500 90.00) (198.00) 98.720.450.00) (148.00) (241.5% - $ $ $ $ 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 Chapter 26 Keafer Manufacturing Working Capital Management 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 735.942.470.00) (148.000.00 $ 882.00) (157.476.462.000 1.524.638.828.00 (259.00 $ 27.730.880.00) (181.000 149.398.00 $ 291.00) (148.00 (233.000.00 280.00 8.00 $ Q3 520.00) (220.356.738.000 $ Q4 709.590.764.430.700.00 301.000.2% 0.800.304.254.000 260.00 $ 502.00) 39.000 10% 57 50% 53 25% 148.00) (176.00) (168.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 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 $ Q2 761.40 .806.60) (191.374.00) (148.00 Quarterly cash flow Q1 Q2 497.00) (260.000.360.00 (225.060.000.00 $ 765.00) (201.223.00) (205.

.50 $59.476.00 $ (201.00 $ 90. in income. in interest.138.50) (27.68 $73.00 $ 90.00 90.674.000.00 $ 59.638.50 127.40 (23.93 $886.68 73.186.93 127.392.18 635.00 $ 90.00 $ 90.50 $497.00 (75.00) $ $ $ $ $ $ $ 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 E Cash Balance Q1 149.00 F Q3 216.000.18 $635.186.00 $ (90.000.68 73.000.751.000.18 $ 90.638.39 $297.435.186.130.500.915.98) (73.00 98.000.00) 14.000.40 90.186.674.915.000.00) (90.392.000.40 Short-term Financial Plan 90.40 113.654.935.98 $ $ 23.00 $ (90.50 497.00) $ 90.63 $ $ 99.000.39 90.50 $127.00 (90.50 497.00 23.130.00 99.18) 297.476.00 126.39) 90.00 (39.000.000.00 27. in income.00 216.00 98.915.39 $ $ 297.138.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 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) Beginning short-term investments Ending short-term investments Beginning short-term debt Ending short-term debt Q1: Q2: Q3: Q4: D G $ Q4 14.93 (886.254.346.435.39 - in income.00 $99.00) - $ $ Q2 189.00 $ 39.738.000.254.000.915.500.738.500.000.392.00) 635.654.00 189.435.00 27.00 99.98) 543.00 $ 39.138.00 $ (201.68 earns earns earns costs $ $ 127.000.915.03 73.03) (886.00) $ $ $ 90.

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 .

915.Microsoft Excel 12.xlsx]Chapter 26 Report Created: 7/15/2009 4:05:13 PM Target Cell (Value Of) Cell Name $F$68 Ending short-term debt Q3 Original Value $ 73.00% Constraints NONE Final Value $ - .39 Adjustable Cells Cell Name $D$24 Growth rate in sales Q1 Original Value Final Value 8.0 Answer Report Worksheet: [Jaffe 9th edition Case Solutions.00% 48.

191.000 0. ACH transfer cost $ 400. FVA $ 13. FVA $13.203.075% 200 Output: 1.98 . 3.190.068% 0.71 The company should go ahead with the plan.Chapter 27 Cash Management at Richmond Corp.20% 14 0.06 2. Input Area: Number of lockboxes Daily payments Investment account rate Wire transfer cost Sweep time Money market yield ACH transfer cost $ $ 4 235.889.

90% 2.00% Output Area: Daily interest rate 0.61 Option 1: Daily sales Variable costs (daily) Defaults on sales (daily) Administrative costs (daily) Interest rate $ $ $ $ NPV $ 32.Chapter 28 Credit Policy at Braam Industries Input Area: Current policy Option 1 Option 2 Option 3 $ $ $ $ Variable costs Interest rate Sales 140.01597% Current policy: Daily sales Variable costs (daily) Defaults on sales (daily) Administrative costs (daily) Interest rate $ $ $ $ 383.000.50% .000 45% 6.000.000 158.136.000 149.67 0.000.287.6085% NPV $ 32.6567% Default rate 1.876.687.67 6.008.553.64 172.90% 2.467.000.000 167.42 11.794.52 12.602.12 Option 2: 432.291.74 7.99 0.561.71 194.369.20% 2.

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

$
$
$
$

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

NPV

$ 25,233,509.84

Option 3:
Daily sales
Variable costs (daily)
Defaults on sales (daily)
Administrative costs (daily)
Interest rate

$
$
$
$

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

NPV

$ 29,158,049.54

Administrative costs
1.60%
2.70%
1.90%
2.10%

Receivables period
38
41
51
49

200.000 15.000 440.000.000 720.000.000.000.000 40% 120.000.Chapter 29 The Birdie Golf-Hybrid Golf Merger Input Area: 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 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Year 1 640.000 0.000.000.000.000 31.000 67.000 6.080.000 28.5000 1.000.000.000 449.000 16.000.000 28.000 20.000 12.400.000.720.800.000 28.000 20.000 60.000.30 88.000 240.000 51.0000 6% 13% 11% 8% 1.000.000.000 .000 64.000 20.000.000.

000) 120.67 0.000.71 $ $ 68.13% Acquisition of Hybrid Dividends from Hybrid Tax-loss carryforwards Terminal value of equity Terminal value of debt Total Present values Acquisition of Hybrid Dividends from Hybrid Tax-loss carryforwards Terminal value of equity Terminal value of debt Total $ $ Year 0 (440.Stock price of acquirer Shares outstanding in acquirer $ 94.50 0.000.75 73.73 $ 96.890.59 17.29 0.000) $ $ (440.400.000 Output Area: Current debt weight Current equity weight Beta of debt Hybrid beta Discount rate for normal operations 0.000.96 12.33 0.00 14.000) 120.890.413.000) 1) NPV $ 2) Highest price to offer $ 471.73% New debt weight New equity weight New stock beta Discount rate for dividends 0.50 1.413.000 $ (320.000.71 Price per share offered Highest share price to offer 3) New share price 31.000.21 .000 $ (320.000.

7145 0.Exchange ratio 4) Highest exchange ratio 0.7314 .

000 21.000 64.000.000 109.000.000 29.600.600.000.000 34.000 33.000 20.000 $ $ $ $ 20.000 66.000 504.400.000 80.600.000 90.000.000 96.640.400.400.000.000 5.000 91.000.000.000.600.000 65.000 24.200.200.000 9.000.000 120.000.000 $ $ $ Year 4 900.000 29.600.400.000 $ 12.000 21.000 19.000.600.000 36.000 $ $ $ Year 5 1.200.800.000.000.000 20.000 21.$ $ $ $ $ $ $ $ Year 2 720.000 40.000.000 37.000 62.200.000 .000.400.000.800.000 94.000 $ 12.600.000.000 97.000.600.000 34.000.000 43.000 111.000.000 54.440.400.000 72.000 560.400.000 $ $ $ $ 24.000 29.000.000 $ 12.000 24.000 27.600.000 14.480.920.000 80.000 74.720.000.800.000 66.000.000 20.000 67.000 17.000.960.000.000 44.000 131.000.000.000 705.000.000.000 40.880.000 632.000 $ $ $ $ 20.000 $ $ $ Year 3 800.000.760.

776 $ $ 14.120.146.151 .Year 1 Year 2 Year 3 Year 4 $ 31.533.865 $ 24.463.280.610.876.280.594.000 $ 33.438 17.533.000 $ 43.120.000.080.594.000 $ 10.000 $ 30.000 $ 23.240.240.000 $ 31.362.645 $ 17.000 20.151 $ 26.766 15.215 $ 30.485.000 $ 33.000 20.865 $ $ 7.000.411 $ 17.000 $ 26.080.

.

.

000 720.339.431.698.967) 252.000 $ 20.000.772 .000) 1.005.640.789.000.Year 5 $ $ 45.037 (163.703 $ $ $ 395.640.000 (240.

.

000 9.880.020.600.280.000 $ $ 9.30 Sales less commission Dollar value of sales € $ 7.740.000 11.000 5% 1.45 80% $ 1.000.600.280.000 Profit at current exchange rate $ 1.000 Profit at new exchange rate $ 600.000 9.000 Breakeven exchange rate ($/€) $ 1.000 Total sales Production costs $ $ 11.Chapter 31 East Coast Yachts Goes International Input Area: Sales per month Commission Current exhange rate ($/€) Production costs 3) Exhange rate ($/€) € $ 8.2211 Output Area: 3) At revised exchange rate: Dollar value of sales Production costs .

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