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Case Solutions

Case Solutions

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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 require that
the "Analysis ToolPak" or "Solver Add-in" be installed in Excel.
To install these, click on "Tools|Add-Ins" and select "Analysis ToolPak"
and "Solver Add-In."
Corporate Finance
9th edition
Case Solutions
Ross, Westerfield, and Jaffe
NOTE: Some functions used in these spreadsheets may require that
the "Analysis ToolPak" or "Solver Add-in" be installed in Excel.
To install these, click on "Tools|Add-Ins" and select "Analysis ToolPak"
Corporate Finance
9th edition
Case Solutions
Ross, Westerfield, and Jaffe
Chapter 2
Cash Flows at Warf Computer, Inc.
Input area:
2010 2009 2010 2009
Current assets Current liabilities
Cash and equivalents 290 $ 251 $ Accounts payable 262 $ 245 $
Accounts receivable 459 428 Notes payable 71 66
Inventories 411 425 Accrued expenses 158 257
Other 59 50 Total current liabilities 491 $ 568 $
Total current assets 1,219 $ 1,154 $
Long-term liabilities
Fixed assets Deferred taxes 212 $ 103 $
Property, plant, and equipment 2,631 $ 2,038 $ Long-term debt 756 736
Less accumulated depreciation 859 700 Total long-term liabilities 968 $ 839 $
Net property, plant, and equipment 1,772 $ 1,338 $
Intangible assets and others 508 454 Stockholders equity
Total fixed assets 2,280 $ 1,792 $ Preferred stock 13 $ 13 $
Common stock 81 80
Capital surplus 509 499
Accumulated retained earnings 1,558 1,028
Less treasury stock 121 81
Total equity 2,040 $ 1,539 $
Total liabilities and
Total assets 3,499 $ 2,946 $ shareholders equity 3,499 $ 2,946 $
Acquisition of fixed assets 786 $
Sale of fixed assets 139 $
New debt issued 118 $
Debt retired 98 $
New stock issued 11 $
Stock repurchased 40 $
Sales 4,844 $
Cost of goods sold 2,858
Selling, general, and administrative 543
Depreciation 159
Operating income 1,284 $
Other income 48
EBIT 1,332 $
Interest expense 95
Pretax income 1,237 $
Taxes 495
Current 386 $
Deferred 109 $
Net income 742 $
Retained earnings 530 $
Dividends 212 $
Output area:
Operating cash flow
Earnings before interest and taxes 1,332 $
Depreciation 159
-Current taxes 386
Operating cash flow 1,105 $
Net capital spending
Acquisition of fixed assets 786 $
Sale of fixed assets (139) $
Capital spending 647 $
Alternatively,
Ending fixed assets 2,280 $
-Beginning fixed assets 1,792
Depreciation 159
Capital spending 647 $
Balance Sheet (in $ thousands)
Income Statement (in $ thousands)
Net working capital cash flow
Ending NWC 728 $
Beginning NWC 586
NWC cash flow 142 $
Cash flow from assets
OCF 1,105 $
-Net capital spending 647
-Change in NWC 142
Cash flow from assets 316 $
Cash flow to creditors
Interest 95 $
Retirement of debt 98
Debt service 193 $
Proceeds from sale of long-term debt (118)
Total 75 $
Alternatively
Beginning long-term debt 736 $
Ending long-term debt (756)
Interest 95
Total 75 $
Cash flow to stockholders
Dividends 212 $
Repurchase of stock 40
Cash to stockholders 252 $
Proceeds from new stock issue (11)
Total 241 $
Alternatively
Beginning total equity 1,539 $
Ending total equity (2,040)
Dividends 212
Retained earnings 530
241 $
Operations
Net income 742 $
Depreciation 159
Deferred taxes 109
Changes in assets and liabilities
Accounts receivable (31)
Inventories 14
Accounts payable 17
Accrued expenses (99)
Other (9)
Total cash flow from operations 902 $
Investing activties
Acquisition of fixed assets (786) $
Sale of fixed assets 139
Total cash flow from investing activities (647) $
Financing activties
Retirement of debt (98) $
Proceeds of long-term debt 118
Notes payable 5
Dividends (212)
Repurchase of stock (40)
Proceeds from new stock issues 11
Total cash flow from financing activities (216) $
Change in cash (on balance sheet) 39 $
Statement of cash flows
Balance Sheet (in $ thousands)
Input area:
Tax rate 40%
Sales 167,310,000 $
COGS 117,910,000
Other expenses 19,994,000
Depreciation 5,460,000
EBIT 23,946,000 $
Interest 3,009,000
Taxable income 20,937,000 $
Taxes (40%) 8,374,800
Net income 12,562,200 $
Dividends 7,537,320 $
Add to RE 5,024,880 $
Current Assets Current liabilities
Cash 3,042,000 $ Accounts payable 6,461,000 $
Accounts rec. 5,473,000 Notes payable 13,078,000
Inventory 6,136,000 Total CL 19,539,000 $
Total CA 14,651,000 $
Long-term debt 33,735,000 $
Fixed assets
Net PP&E 93,964,000 $ Shareholder equity
Common stock 5,200,000 $
Retained earnings 50,141,000
Total equity 55,341,000 $
Total assets 108,615,000 $ Total L&E 108,615,000 $
Growth rate 20%
Minimum FA purchase 30,000,000 $
Output area:
1) Current ratio 0.75
Quick ratio 0.44
Total asset turnover 1.54
Inventory turnover 19.22
Receivables turnover 30.57
Debt ratio 0.49
Debt-equity ratio 0.96
Equity multiplier 1.96
Interest coverage 7.96
Profit margin 7.51%
Return on assets 11.57%
Return on equity 22.70%
3) Retention ratio 0.40
Sustainable growth rate 9.99%
Sales 184,018,615 $
COGS 129,685,224
Other expenses 21,990,725
Chapter 3
Liabilities & Equity Assets
Ratios and Financial Planning at East Coast Yachts
Depreciation 5,460,000
EBIT 26,882,666 $
Interest 3,009,000
Taxable income 23,873,666 $
Taxes (40%) 9,549,466
Net income 14,324,199 $
Dividends 8,594,520 $
Add to RE 5,729,680
Current Assets Current liabilities
Cash 3,345,793 $ Accounts payable 7,106,236 $
Accounts rec. 6,019,568 Notes payable 14,384,050
Inventory 6,748,779 Total CL 21,490,286 $
Total CA 16,114,140 $
Long-term debt 33,735,000 $
Fixed assets
Net PP&E 103,347,828 $ Shareholder equity
Common stock 5,200,000 $
Retained earnings 55,870,680
Total equity 61,070,680 $
Total Assets 119,461,968 $ Total L&E 116,295,966 $
EFN 3,166,002 $
Current ratio 0.75
Quick ratio 0.44
Total asset turnover 1.54
Inventory turnover 19.22
Receivables turnover 30.57
Debt ratio 0.49
Debt-equity ratio 0.90
Equity multiplier 1.96
Interest coverage 8.93
Profit margin 7.78%
Return on assets 11.99%
Return on equity 23.46%
4) Sales 200,772,000 $
COGS 141,492,000
Other expenses 23,992,800
Depreciation 5,460,000
EBIT 29,827,200 $
Interest 3,009,000
Taxable income 26,818,200 $
Taxes (40%) 10,727,280
Net income 16,090,920 $
Dividends 9,654,552 $
Add to RE 6,436,368
Current Assets Current liabilities
Cash 3,650,400 $ Accounts payable 7,753,200 $
Accounts rec. 6,567,600 Notes payable 15,693,600
Inventory 7,363,200 Total CL 23,446,800 $
Total CA 17,581,200 $
Long-term debt 33,735,000 $
Fixed assets
Net PP&E 112,756,800 $ Shareholder equity
Assets Liabilities & Equity
Assets Liabilities & Equity
Common stock 5,200,000 $
Retained earnings 56,577,368
Total equity 61,777,368 $
Total Assets 130,338,000 $ Total L&E 118,959,168 $
EFN 11,378,832 $
5) EFN if minimum FA purchase is 30,000,000 $
Depreciation as a percentage of fixed assets 5.81%
New fixed assets 123,964,000 $
New depreciation 7,203,221 $
Sales 200,772,000 $
COGS 141,492,000
Other expenses 23,992,800
Depreciation 7,203,221
EBIT 28,083,979 $
Interest 3,009,000
Taxable income 25,074,979 $
Taxes (40%) 10,029,992
Net income 15,044,988 $
Dividends 9,026,993 $
Add to RE 6,017,995
Current Assets Current liabilities
Cash 3,650,400 $ Accounts payable 7,753,200 $
Accounts rec. 6,567,600 Notes payable 15,693,600
Inventory 7,363,200 Total CL 23,446,800 $
Total CA 17,581,200 $
Long-term debt 33,735,000 $
Fixed assets
Net PP&E 123,964,000 $ Shareholder equity
Common stock 5,200,000 $
Retained earnings 56,158,995
Total equity 61,358,995 $
Total Assets 141,545,200 $ Total L&E 118,540,795 $
EFN 23,004,405 $
Assets Liabilities & Equity
Input area:
Current salary 60,000 $
Years until retirement 40
Salary increase 3%
Tax rate 26%
Wilton
Tuition per year 65,000 $
Books & Supplies 3,000 $
Starting salary 110,000 $
Signing bonus 20,000 $
Salary increase 4%
Tax rate 31%
Mount Perry
Tuition per year 80,000 $
Books & Supplies 4,500 $
Signing bonus 18,000 $
Starting salary 92,000 $
Salary increase 3.5%
Tax rate 29%
Both schools
Health insurance 3,000 $
Room & board increase 2,000 $
Discount rate 6.50%
Output area:
3. Current job
Aftertax income 44,400.00 $
Present value of salary 935,283.49 $
Wilton MBA
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 $
Mount Perry MBA
PV of tuition & expenses (89,500.00) $
Chapter 4
The MBA Decision
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 $
5. Current job PV minus
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 $
Input area:
Year Cash flow
0 (400,000,000) $
1 85,000,000 $
2 90,000,000 $
3 140,000,000 $
4 180,000,000 $
5 195,000,000 $
6 130,000,000 $
7 95,000,000 $
8 60,000,000 $
9 (95,000,000) $
Required return 12%
Output area:
Payback period 3.47
IRR 23.73% =IRR(D8:D17)
IRR -48.93% =IRR(D8:D17,-0.99)
MIRR 16.21% =MIRR(D8:D17,D19,D19)
Profitability index 1.43 =NPV(D19,D9:D17)/-D8
NPV 171,141,294.31 $ =NPV(D19,D9:D17)+D8
Chapter 5
Bullock Gold Mining
Chapter 6
Input area:
Equipment 85,000,000 $
Land cost 6,000,000 $
Aftertax land value 7,000,000 $
Contract sales/tons 500,000
Year 1 production 620,000
Year 2 production 680,000
Year 3 production 730,000
Year 4 production 590,000
Contract $/ton $95
Spot market $/ton $90
Variable cost/ton $31
Year 1 depreciation 14.30%
Year 2 depreciation 24.50%
Year 3 depreciation 17.50%
Year 4 depreciation 12.50%
Fixed costs $4,300,000
Reclamation costs $2,800,000
Charitable expense $7,500,000
NWC percent 5%
Tax rate 38%
Required return 12%
Output area:
Time 0 cash flow
Equipment (85,000,000) $
Land (7,000,000)
NWC (2,915,000)
Total ($94,915,000)
Sales Year 1 Year 2 Year 3
Contract 47,500,000 $ 47,500,000 $ 47,500,000 $
Spot 10,800,000 16,200,000 20,700,000
Total 58,300,000 $ 63,700,000 $ 68,200,000 $
Sales 58,300,000 $ 63,700,000 $ 68,200,000 $
Bethesda Mining
VC 19,220,000 21,080,000 22,630,000
FC 4,300,000 4,300,000 4,300,000
Dep 12,155,000 20,825,000 14,875,000
EBT 22,625,000 $ 17,495,000 $ 26,395,000 $
Tax 8,597,500 6,648,100 10,030,100
NI 14,027,500 $ 10,846,900 $ 16,364,900 $
+ Dep 12,155,000 20,825,000 14,875,000
OCF 26,182,500 $ 31,671,900 $ 31,239,900 $
Beginning NWC 2,915,000 $ 3,185,000 $ 3,410,000 $
Ending NWC 3,185,000 3,410,000 2,780,000
NWC cash flow (270,000) $ (225,000) $ 630,000 $
Total cash flow 25,912,500 $ 31,446,900 $ 31,869,900 $
Book value 72,845,000 $ 52,020,000 $ 37,145,000 $
Salvage MV 51,000,000 $
BV 26,520,000
Taxes (9,302,400)
Salvage CF 41,697,600 $
Time Cash flow
0 (94,915,000) $
1 25,912,500
2 31,446,900
3 31,869,900
4 68,981,300
5 (1,736,000)
6 (4,650,000)
Profitability index 1.1736
Average accounting return 20.79%
IRR 19.01%
IRR -74.64%
MIRR 14.93%
NPV 16,472,777.67 $
Year 4 Year 5 Year 6
47,500,000 $
8,100,000
55,600,000 $
55,600,000 $
18,290,000
4,300,000 2,800,000 $ 7,500,000 $
10,625,000
22,385,000 $ (2,800,000) $ (7,500,000) $
8,506,300 (1,064,000) (2,850,000)
13,878,700 $ (1,736,000) $ (4,650,000) $
10,625,000 - -
24,503,700 $ (1,736,000) $ (4,650,000) $
2,780,000 $
2,780,000 $
27,283,700 $
26,520,000 $ - $ - $
Chapter 6
Input area:
Research and development 10,000,000 $
Test marketing cost 5,000,000 $
Initial equipment cost 140,000,000 $
Equipment salvage value 54,000,000 $
Year 1 depreciation 14.30%
Year 2 depreciation 24.50%
Year 3 depreciation 17.50%
Year 4 depreciation 12.50%
OEM market:
Price 38 $
Variable cost 22 $
Automobile production 5,600,000
Growth rate 2.50%
Market share 11.00%
Replacement market:
Price 59 $
Variable cost 22 $
Market sales 14,000,000
Growth rate 2.00%
Market share 8.00%
Price increase above inflation 1%
VC increase above inflation 1%
Marketing and general costs 26,000,000 $
Tax rate 40.00%
Inflation rate 3.25%
Required return 15.90%
Initial NWC 9,000,000 $
NWC percentage of sales 15%
Output area:
Nominal price increase 4.28%
Nominal VC increase 4.28%
Year 0 Year 1 Year 2 Year 3 Year 4
OEM:
Automobiles sold 5,600,000 5,740,000 5,883,500 6,030,588
Tires for automobiles sold 22,400,000 22,960,000 23,534,000 24,122,350
SuperTread tires sold 2,464,000 2,525,600 2,588,740 2,653,459
Price 38.00 $ 39.24 $ 40.51 $ 41.83 $
Replacement market:
Total tires sold in market 14,000,000 14,280,000 14,565,600 14,856,912
SuperTread tires sold 1,120,000 1,142,400 1,165,248 1,188,553
Price 59.00 $ 60.92 $ 62.90 $ 64.94 $
Revenue:
OEM market 93,632,000 $ 99,091,916 $ 104,870,213 $ 110,985,458 $
Replacement market 66,080,000 69,592,152 73,290,975 77,186,390
Total 159,712,000 $ 168,684,068 $ 178,161,188 $ 188,171,848 $
Variable costs:
OEM market 54,208,000 $ 57,942,694 $ 59,391,261 $ 60,876,043 $
Replacement market 24,640,000 26,209,112 25,635,456 26,148,165
Total 78,848,000 $ 84,151,806 $ 85,026,717 $ 87,024,208 $
Goodweek Tires, Inc.
Revenue 159,712,000 $ 168,684,068 $ 178,161,188 $ 188,171,848 $
Variable costs 78,848,000 84,151,806 85,026,717 87,024,208
Marketing and general costs 26,000,000 26,845,000 27,717,463 28,618,280
Depreciation 20,020,000 34,300,000 24,500,000 17,500,000
EBT 34,844,000 $ 23,387,262 $ 40,917,008 $ 55,029,360 $
Tax 13,937,600 9,354,905 16,366,803 22,011,744
Net income 20,906,400 $ 14,032,357 $ 24,550,205 $ 33,017,616 $
OCF 40,926,400 $ 48,332,357 $ 49,050,205 $ 50,517,616 $
New working capital:
Beginning 0 9,000,000 $ 23,956,800 $ 25,302,610 $ 26,724,178 $
Ending 9,000,000 23,956,800 25,302,610 26,724,178 -
NWC cash flow (9,000,000) $ (14,956,800) $ (1,345,810) $ (1,421,568) $ 26,724,178 $
Book value of equipment 140,000,000 $ 119,980,000 $ 85,680,000 $ 61,180,000 $ 43,680,000 $
Aftertax salvage value:
Market value 54,000,000 $
Taxes (4,128,000)
Total 49,872,000 $
Year 0 Year 1 Year 2 Year 3 Year 4
Operating cash flow 40,926,400 $ 48,332,357 $ 49,050,205 $ 50,517,616 $
Capital spending (140,000,000) $ 49,872,000
Net working capital (9,000,000) (14,956,800) (1,345,810) (1,421,568) 26,724,178
Total cash flows (149,000,000) $ 25,969,600 $ 46,986,547 $ 47,628,637 $ 127,113,794 $
Discounted cash flow (149,000,000) $ 22,406,903 $ 34,978,941 $ 30,592,703 $ 70,446,422 $
NPV 9,424,967.81 $
IRR 18.35%
Profitability index 1.0633
Chapter 7
Bunyan Lumber, LLC
Input area:
Total acreage 5,000
Years since original planting 20
1P pond value 660 $
2P pond value 630 $
3P pond value 620 $
Cash flow/acre from thinning 1,000 $
Years from today for harvest Harvest (MBF)
to begin per acre 1P 2P 3P
20 14.1 16% 36% 48%
25 16.4 20% 40% 40%
30 17.3 22% 43% 35%
35 18.1 24% 45% 31%
Defect rate 5%
Tractor cost (MBF) 140 $
Road (MBF) 50 $
Sale preparation and
and administrative (MBF) 18 $
Excavator piling/acre 150 $
Broadcast burning/acre 300 $
Site preparation/acre 145 $
Planting costs/acre 225 $
Nominal required return 10.00%
Inflation rate 3.70%
Tax rate 35%
Conservation fund 250,000 $
Conservation fund growth 3.20%
Output area:
Real required return 6.08%
Cash flow from thinning 5,000,000 $
Harvest in 20 years
Revenue 42,194,250 $
Tractor cost 9,870,000
Road 3,525,000
Sale preparation & admin 1,269,000
Excavator piling 750,000
Broadcast burning 1,500,000
Site preparation 725,000
Planting costs 1,125,000
EBIT 23,430,250 $
Taxes 8,200,588
Net income (OCF) 15,229,663 $
PV of first harvest 4,681,788 $
Next thinning will occur in 40 years, and will reoccur at this same interval.
The effective real interest rate for this period is 958.17%
The real rate in the conservation fund is 6.59%
The effective real interest rate for the
conservation fund for this period is 1183.87%
Aftertax cost of convservation (162,500.00) $
Value of conservation at harvest (176,226.22) $
PV of future thinnings 521,825.80 $
PV of future harvests 488,615.51 $
PV of conservation fund (49,182.52) $
Total NPV 5,643,046.36 $
Harvest in 25 years
Revenue 49,232,800 $
Tractor cost 11,480,000
Road 4,100,000
Sale preparation & admin 1,476,000
Excavator piling 750,000
Broadcast burning 1,500,000
Site preparation 725,000
Planting costs 1,125,000
EBIT 28,076,800 $
Taxes 9,826,880
Net income (OCF) 18,249,920 $
PV of first harvest 4,177,464 $
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 378,470.46 $
PV of future harvests 316,209.37 $
PV of conservation fund (34,941.27) $
Total NPV 4,837,202.85 $
Harvest in 30 years
Revenue 52,024,993 $
Tractor cost 12,110,000
Road 4,325,000
Sale preparation & admin 1,557,000
Excavator piling 750,000
Broadcast burning 1,500,000
Site preparation 725,000
Planting costs 1,125,000
EBIT 29,932,993 $
Taxes 10,476,547
Net income (OCF) 19,456,445 $
PV of first harvest 3,316,238 $
Next thinning will occur in 50 years, and will reoccur at this same interval.
The effective real interest rate for this period is 1808.52%
The effective real interest rate for the
conservation fund for this period is 2330.24%
Value of conservation at harvest (169,473.53) $
PV of future thinnings 276,469.34 $
PV of future harvests 183,367.60 $
PV of conservation fund (24,986.89) $
Total NPV 3,751,087.59 $
Harvest in 35 years
Revenue 54,516,748 $
Tractor cost 12,670,000
Road 4,525,000
Sale preparation & admin 1,629,000
Excavator piling 750,000
Broadcast burning 1,500,000
Site preparation 725,000
Planting costs 1,125,000
EBIT 31,592,748 $
Taxes 11,057,462
Net income (OCF) 20,535,286 $
PV of first harvest 2,606,233 $
Next thinning will occur in 55 years, and will reoccur at this same interval.
The effective real interest rate for this period is 2463.10%
The effective real interest rate for the
conservation fund for this period is 3243.60%
Value of conservation at harvest (167,509.87) $
PV of future thinnings 202,995.97 $
PV of future harvests 105,810.96 $
PV of conservation fund (17,950.88) $
Total NPV 2,897,089.08 $
Input area:
Years to maturity 20
Required return 7.50%
Amount needed 40,000,000 $
Face value 1,000 $
Coupon rate 7.50%
Tax rate 35%
Year bond is called 7
Spread above Treasury 0.40%
Treasury rate at call 5.60%
Treasury rate at call 9.10%
Output area:
2) Price of coupon bond 1,000 $
# of coupon bonds needed 40,000
Price of zero coupon bond 229.34 $
# of zeroes needed 174,413
3) Repayment of coupon bonds 40,000,000 $
Repayment of zeroes 174,413,000 $
4) Year 1 interest payments:
Pretax coupon payment 3,000,000 $
Aftertax coupon payment 1,950,000 $ Cash outflow
Value of zero in one year 246.86 $
Zero coupon growth 17.52 $
Zero coupon bond (1,069,544.61) $ 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.
Chapter 8
Financing East Coast Yachts Expansion Plans with a Bond Issue
5) Make whole price 1,134.08 $
Make whole price 852.47 $
Chapter 8
Financing East Coast Yachts Expansion Plans with a Bond Issue
Input area:
Shares owned by each sibling 150,000
Ragan EPS 5.08 $
Dividend to each sibling 320,000 $
Ragan ROE 25%
Ragan required return 20%
EPS DPS Stock price ROE R
Blue Ribband Motors Corp. 1.09 $ 0.16 $ 15.19 $ 11.00% 14.00%
Bon Voyage Marine, Inc. 1.16 0.53 12.49 14.00% 19.00%
Nautilus Marine Engines (0.32) 0.54 23.05 14.00% 18.00%
Industry average 0.64 $ 0.41 $ 16.91 $ 13.00% 17.00%
Nautilus EPS w/o write-off 1.97 $
Output area:
1) Total earnings 1,524,000.00 $
Payout ratio 41.99%
Retention ratio 58.01%
Growth rate 14.50%
Total dividends next year 732,808.40 $
Total equity value 13,326,968.97 $
Value per share 44.42 $
2) Industry EPS 1.41 $
Industry payout ratio 29.15%
Industry retention ratio 70.85%
Industry growth rate 9.21%
Year Total dividends
1 732,808.40 $
2 839,075.23 $
3 960,752.15 $
4 1,100,073.82 $
5 1,259,598.97 $
6 1,375,619.37 $
Stock value in Year 5 17,660,826.76 $
Total stock value today 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 $
Chapter 9
Stock Valuation at Ragan Engines
4) Total earnings 1,524,000.00 $
Cash cow value 8,964,705.88 $
Percentage not attributable to
growth opportunities 81.08%
Percentage attributable to
growth opportunities 18.92%
5) ROE 15.88%
Input area:
10-year annual Standard deviation
Bledsoe S&P 500 Index Fund 8.45% 21.85%
Bledsoe Small-Cap Fund 13.45% 24.83%
Bledsoe Large Company Stock Fund 8.62% 22.93%
Bledsoe Bond Fund 6.25% 9.20%
Risk-free rate (historic) 3.80%
Company stock expected return 16.00%
Company stock standard deviation 70.00%
Output area:
Bledsoe S&P 500 Index Fund 0.2128
Bledsoe Small-Cap Fund 0.3886
Bledsoe Large Company Stock Fund 0.2102
Bledsoe Bond Fund 0.2663
Company stock 0.1743
Chapter 10
A Job at East Coast Yachts
Input area:
10-year annual Standard deviation
Bledsoe Large Company Stock Fund 8.62% 22.93%
Bledsoe Bond Fund 6.25% 9.20%
Risk-free rate (historic) 3.80%
Correlation 0.15
Output area:
Weight of stock fund Portfolio E(R)
Portfolio standard
deviation
0% 6.25% 9.2000%
10% 6.49% 8.9170%
20% 6.72% 9.2373%
30% 6.96% 10.1037%
40% 7.20% 11.3923%
50% 7.44% 12.9780%
60% 7.67% 14.7653%
70% 7.91% 16.6896%
80% 8.15% 18.7087%
90% 8.38% 20.7949%
100% 8.62% 22.9300%
Dominant portfolio:
Weight of stock fund 19.37%
Weight of bond fund 80.63%
Standard deviation 9.20%
Expected return 6.71%
Minumum variance portfolio:
Weight of large cap stock fund 9.69%
Weight of bond fund 90.31%
Expected return 6.48%
Variance 0.007951
Standard deviation 8.9167%
Sharpe optimal portfolio: (Using Solver)
Weight of large cap stock fund 22.54%
Sharpe ratio 0.317133
Weight of large cap stock fund 22.54%
Weight of bond fund 77.46%
Expected return 6.78%
Standard deviation 9.4098%
Sharpe ratio 0.317133
Chapter 11
A Job at East Coast Yachts, Part 2
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8.00%
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Portfolio Standard Deviation
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 Original Value Final Value
$D$46 Sharpe ratio Portfolio E(R) 0.266304 0.317133
Adjustable Cells
Cell Name Original Value Final Value
$D$45 Weight of large cap stock fund Portfolio E(R) 0.00% 22.54%
Constraints
NONE
FMAGX FLPSX
Mkt-RF SMB HML RF Adj Close Adj Close
200312 62.03 $ 22.50 $
200401 2.24 2.6 1.66 0.07 62.83 $ 23.11 $
200402 1.49 -1.2 0.37 0.06 63.72 $ 23.79 $
200403 -1.16 1.85 -0.01 0.09 62.92 $ 23.82 $
200404 -2.5 -2.53 -1.69 0.08 61.84 $ 23.24 $
200405 1.35 -0.12 -0.31 0.06 62.49 $ 23.30 $
200406 2.08 2.25 1.72 0.08 63.40 $ 24.11 $
200407 -3.87 -3.82 4.42 0.1 60.92 $ 23.27 $
200408 0.16 -1.56 1.13 0.11 61.07 $ 23.20 $
200409 1.95 2.82 0.4 0.11 61.64 $ 24.12 $
200410 1.67 0.49 -0.95 0.11 62.59 $ 24.45 $
200411 4.67 4.11 1.96 0.15 64.67 $ 26.40 $
200412 3.36 0.18 -0.35 0.16 66.68 $ 27.45 $
200501 -2.82 -1.67 2.52 0.16 65.43 $ 26.91 $
200502 2.11 -0.76 2.85 0.16 66.20 $ 27.76 $
200503 -1.9 -1.37 1.71 0.21 64.89 $ 27.19 $
200504 -2.73 -3.95 -0.49 0.21 63.55 $ 25.90 $
200505 3.55 3.01 -1.16 0.24 65.84 $ 27.17 $
200506 0.92 2.58 2.84 0.23 65.87 $ 28.03 $
200507 4.09 2.77 -0.47 0.24 68.52 $ 29.11 $
200508 -0.89 -0.88 1.44 0.3 67.73 $ 29.08 $
200509 0.77 -0.65 1.23 0.29 68.21 $ 29.30 $
200510 -2.35 -1.05 -0.74 0.27 67.33 $ 28.06 $
200511 3.73 0.99 -1.75 0.31 69.59 $ 29.31 $
200512 0.03 -0.47 0.51 0.32 70.96 $ 29.84 $
200601 3.66 5.33 1.18 0.35 74.35 $ 31.80 $
200602 -0.5 -0.31 -0.76 0.34 73.24 $ 31.60 $
200603 1.54 3.51 0.04 0.37 75.20 $ 32.41 $
200604 0.94 -1.22 3.07 0.36 76.64 $ 33.05 $
200605 -3.53 -3 2.75 0.43 72.90 $ 31.73 $
200606 -0.44 -0.47 1.51 0.4 72.36 $ 31.35 $
200607 -0.59 -3.9 3.25 0.4 70.10 $ 30.98 $
200608 2.09 0.8 -1.66 0.42 71.79 $ 31.55 $
200609 1.54 -1.22 -0.49 0.41 72.59 $ 32.01 $
200610 3.3 1.68 0.49 0.41 74.71 $ 33.13 $
200611 1.95 0.7 0.39 0.42 76.65 $ 34.51 $
The Fama-French Multi-Factor Model and Mutual Fund Returns
Chapter 12
Input area:
200612 0.68 -0.93 2.56 0.4 76.24 $ 35.14 $
200701 1.5 0.02 0 0.44 78.43 $ 35.57 $
200702 -1.78 1.39 0.32 0.38 77.14 $ 35.47 $
200703 0.86 -0.2 0.31 0.43 77.78 $ 36.06 $
200704 3.55 -2.06 -1.08 0.44 81.52 $ 37.23 $
200705 3.48 -0.05 -0.23 0.41 84.84 $ 38.69 $
200706 -1.88 0.69 -1.07 0.4 84.48 $ 38.34 $
200707 -3.58 -2.74 -3.01 0.4 82.94 $ 36.63 $
200708 0.74 -0.09 -2.42 0.42 83.90 $ 36.37 $
200709 3.77 -2.47 -2.1 0.32 89.11 $ 37.33 $
200710 2.26 0.07 -1.97 0.32 93.86 $ 38.44 $
200711 -5.27 -2.72 -0.88 0.34 90.30 $ 36.04 $
200712 -0.7 0.06 -0.02 0.27 90.61 $ 36.21 $
200801 -6.44 -0.76 3.13 0.21 82.50 $ 34.40 $
200802 -2.33 -0.67 0.04 0.13 81.18 $ 34.06 $
200803 -1.22 0.87 0.26 0.17 79.40 $ 33.44 $
200804 4.94 -1.6 0.08 0.17 84.58 $ 35.14 $
200805 2.21 2.8 -0.3 0.17 87.17 $ 36.37 $
200806 -8.03 0.91 -0.93 0.17 79.87 $ 33.20 $
200807 -1.46 3.89 3.57 0.15 76.73 $ 32.74 $
200808 0.98 3.66 1.65 0.12 76.67 $ 33.07 $
200809 -9.96 -0.2 4.37 0.15 62.89 $ 29.17 $
200810 -18.55 -2.05 -3.14 0.08 49.30 $ 23.33 $
200811 -8.54 -3.46 -5.09 0.02 43.72 $ 21.29 $
200812 2.06 4.09 -1.21 0.09 45.86 $ 23.12 $
Output area:
Mkt-RF SMB HML FMAGX FLPSX BSCFX
200401 0.0224 0.0260 0.0166 0.0122 0.0264 0.0368
200402 0.0149 -0.0120 0.0037 0.0136 0.0288 0.0054
200403 -0.0116 0.0185 -0.0001 -0.0135 0.0004 0.0264
200404 -0.0250 -0.0253 -0.0169 -0.0180 -0.0251 0.0277
200405 0.0135 -0.0012 -0.0031 0.0099 0.0020 0.0007
200406 0.0208 0.0225 0.0172 0.0138 0.0340 -0.0140
200407 -0.0387 -0.0382 0.0442 -0.0401 -0.0358 -0.0628
200408 0.0016 -0.0156 0.0113 0.0014 -0.0041 -0.0174
200409 0.0195 0.0282 0.0040 0.0082 0.0386 0.0265
200410 0.0167 0.0049 -0.0095 0.0143 0.0126 0.0399
200411 0.0467 0.0411 0.0196 0.0317 0.0783 0.0682
200412 0.0336 0.0018 -0.0035 0.0295 0.0382 0.0600
Risk premium for mutual funds
200501 -0.0282 -0.0167 0.0252 -0.0203 -0.0213 -0.0079
200502 0.0211 -0.0076 0.0285 0.0102 0.0300 0.0133
200503 -0.0190 -0.0137 0.0171 -0.0219 -0.0226 -0.0060
200504 -0.0273 -0.0395 -0.0049 -0.0228 -0.0495 -0.0468
200505 0.0355 0.0301 -0.0116 0.0336 0.0466 0.0284
200506 0.0092 0.0258 0.0284 -0.0018 0.0294 0.0477
200507 0.0409 0.0277 -0.0047 0.0378 0.0361 0.0430
200508 -0.0089 -0.0088 0.0144 -0.0145 -0.0040 -0.0302
200509 0.0077 -0.0065 0.0123 0.0042 0.0047 -0.0131
200510 -0.0235 -0.0105 -0.0074 -0.0156 -0.0450 -0.0511
200511 0.0373 0.0099 -0.0175 0.0305 0.0414 0.0638
200512 0.0003 -0.0047 0.0051 0.0165 0.0149 0.0177
200601 0.0366 0.0533 0.0118 0.0443 0.0622 0.0637
200602 -0.0050 -0.0031 -0.0076 -0.0183 -0.0097 -0.0054
200603 0.0154 0.0351 0.0004 0.0231 0.0219 0.0416
200604 0.0094 -0.0122 0.0307 0.0155 0.0161 -0.0088
200605 -0.0353 -0.0300 0.0275 -0.0531 -0.0442 -0.0611
200606 -0.0044 -0.0047 0.0151 -0.0114 -0.0160 -0.0171
200607 -0.0059 -0.0390 0.0325 -0.0352 -0.0158 -0.0686
200608 0.0209 0.0080 -0.0166 0.0199 0.0142 0.0181
200609 0.0154 -0.0122 -0.0049 0.0070 0.0105 0.0289
200610 0.0330 0.0168 0.0049 0.0251 0.0309 0.0536
200611 0.0195 0.0070 0.0039 0.0218 0.0375 0.0245
200612 0.0068 -0.0093 0.0256 -0.0093 0.0143 0.0055
200701 0.0150 0.0002 0.0000 0.0243 0.0078 0.0345
200702 -0.0178 0.0139 0.0032 -0.0202 -0.0066 -0.0110
200703 0.0086 -0.0020 0.0031 0.0040 0.0123 0.0025
200704 0.0355 -0.0206 -0.0108 0.0437 0.0280 0.0164
200705 0.0348 -0.0005 -0.0023 0.0366 0.0351 0.0344
200706 -0.0188 0.0069 -0.0107 -0.0082 -0.0130 -0.0031
200707 -0.0358 -0.0274 -0.0301 -0.0222 -0.0486 -0.0461
200708 0.0074 -0.0009 -0.0242 0.0074 -0.0113 0.0042
200709 0.0377 -0.0247 -0.0210 0.0589 0.0232 0.0448
200710 0.0226 0.0007 -0.0197 0.0501 0.0265 0.0519
200711 -0.0527 -0.0272 -0.0088 -0.0413 -0.0658 -0.0297
200712 -0.0070 0.0006 -0.0002 0.0007 0.0020 -0.0273
200801 -0.0644 -0.0076 0.0313 -0.0916 -0.0521 -0.0953
200802 -0.0233 -0.0067 0.0004 -0.0173 -0.0112 -0.0369
200803 -0.0122 0.0087 0.0026 -0.0236 -0.0199 -0.0142
200804 0.0494 -0.0160 0.0008 0.0635 0.0491 0.0488
200805 0.0221 0.0280 -0.0030 0.0289 0.0333 0.0302
200806 -0.0803 0.0091 -0.0093 -0.0854 -0.0889 -0.0972
200807 -0.0146 0.0389 0.0357 -0.0408 -0.0154 0.0030
200808 0.0098 0.0366 0.0165 -0.0020 0.0089 0.0269
200809 -0.0996 -0.0020 0.0437 -0.1812 -0.1194 -0.1042
200810 -0.1855 -0.0205 -0.0314 -0.2169 -0.2010 -0.1949
200811 -0.0854 -0.0346 -0.0509 -0.1134 -0.0876 -0.1070
200812 0.0206 0.0409 -0.0121 0.0480 0.0851 0.0570
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 $
The Fama-French Multi-Factor Model and Mutual Fund Returns
Chapter 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 0.96923
R Square 0.93941
Adjusted R Square 0.93617
Standard Error 0.01265
Observations 60
ANOVA
df SS MS F Significance F
Regression 3 0.13900418 0.04633473 289.419805 4.7395E-34
Residual 56 0.00896533 0.0001601
Total 59 0.14796951
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0%
Intercept -0.00147944 0.00166478 -0.88867336 0.37798007 -0.00481439 0.00185551 -0.00481439
Mkt-RF 1.23051197 0.04505004 27.3143341 4.7026E-34 1.14026588 1.32075805 1.14026588
SMB -0.13006248 0.08242486 -1.57795205 0.12020937 -0.29517932 0.03505436 -0.29517932
HML -0.35628371 0.08694435 -4.09783623 0.00013585 -0.53045418 -0.18211325 -0.53045418
Upper 95.0%
0.00185551
1.32075805
0.03505436
-0.18211325
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.97008
R Square 0.94106
Adjusted R Square 0.93790
Standard Error 0.01177
Observations 60
ANOVA
df SS MS F Significance F
Regression 3 0.12381327 0.04127109 298.035876 2.1912E-34
Residual 56 0.00775471 0.00013848
Total 59 0.13156798
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0%
Intercept 0.00156955 0.0015483 1.01372039 0.31507618 -0.00153208 0.00467117 -0.00153208
Mkt-RF 1.04743233 0.04189814 24.9994946 4.6288E-32 0.96350027 1.13136439 0.96350027
SMB 0.32268708 0.07665805 4.20943515 9.3607E-05 0.16912256 0.47625161 0.16912256
HML 0.0823834 0.08086133 1.0188232 0.31266842 -0.07960131 0.24436812 -0.07960131
Upper 95.0%
0.00467117
1.13136439
0.47625161
0.24436812
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.93283
R Square 0.87017
Adjusted R Square 0.86321
Standard Error 0.01874
Observations 60
ANOVA
df SS MS F Significance F
Regression 3 0.13176815 0.04392272 125.108005 8.4617E-25
Residual 56 0.01966039 0.00035108
Total 59 0.15142854
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0%
Intercept 0.00212408 0.0024653 0.86159383 0.39258546 -0.0028145 0.00706267 -0.0028145
Mkt-RF 1.04525708 0.06671263 15.6680527 3.9677E-22 0.91161561 1.17889854 0.91161561
SMB 0.46569109 0.12205937 3.8152836 0.00034173 0.22117681 0.71020538 0.22117681
HML -0.26523463 0.12875208 -2.06004154 0.04405317 -0.52315603 -0.00731323 -0.52315603
Upper 95.0%
0.00706267
1.17889854
0.71020538
-0.00731323
Input area:
Bond 2013 maturity book value 600 $
2013 bond price 94.367
2013 bond YTM 6.221%
Bond 2018 maturity book value 500 $
2018 bond price 92.106
2018 bond YTM 6.811%
Bond 2028 maturity book value 300 $
2028 bond price 91.672
2028 bond YTM 7.949%
Bond 2038 maturity book value 400 $
2038 bond price 80.725
2038 bond YTM 8.254%
BV of debt (balance sheet) 1,851 $
BV of equity per share 2.139 $
Stock price 11.20 $
Shares outstanding (billions) 1.94
Beta 1.410
3-month Treasury bill rate 0.10%
Market risk premium 7.00%
Bond 1 price 100.433
Bond 1 YTM 5.124%
Tax rate 35%
Output area:
2) R
E
from CAPM 9.97%
3) Company Beta
Apple Inc. 1.87
Dell 1.41
Hewlett Packard 1.19
Sun Microsystems 1.92
Ingram Mico Inc. 1.18
Tech Data Corp. 1.28
Electronics for Imaging 1.40
Chapter 13
The Cost of Capital for Goff Computer, Inc.
Palm, Inc. 2.16
Digi International 0.62
Agilysis, Inc. 1.84
Rackable Systems, Inc. 1.62
SeaChange International 0.62
MIPS Technologies 1.89
Silicon Graphics 1.28
Cray Inc. 1.87
Industry Average 1.48
R
E
with industry beta 10.44%
4)
Book value
(millions)
Percent
of total
Bond 1 $ 600 0.33
Bond 2 500 0.28
Bond 3 300 0.17
Bond 4 400 0.22
Total 1,800 $ 1.00 $
5) Book value of equity 4.1497 $ billion
Market value of equity 21.7280 $ billion
Book value of company 5.9497 $ million
Market value of company 23.3526 $ million
WACC using book value 8.07%
WACC using market value 9.60%
Quoted
price
Market value
(millions)
Percent
of total
Yield to
Maturity
Book
values
Market
values
94.367 $ 566.202 0.35 6.221% 2.07% 2.17%
92.106 460.530 0.28 6.811% 1.89% 1.93%
91.672 275.016 0.17 7.949% 1.32% 1.35%
80.725 322.900 0.20 8.254% 1.83% 1.64%
1,624.65 $ 1.00 7.12% 7.08%
Chapter 16
Input area:
Shares outstanding 15,000,000 acciones en circulación
Share price 35.50 $ Precio de la acción
Purchase price 60,000,000 $ Precio del terreno
Increase in cash flow 14,000,000 $ Incremento del flujo de caja anual
Current cost of capital 12.50% Costo de capital
YTM on new debt 8.00% Tasa cupón del Bono Yield to maturity
Equity weight in new capital structure 70% Porcentaje de capital
Tax rate 40% Tasa impositiva
Output area: Recomendamos emitir deuda,. Porque ele costo de esa fuente es menor
2. Assets 532,500,000 $ Equity 532,500,000 $
Total assets 532,500,000 $ Total Debt & Equity 532,500,000 $
3. a) Aftertax earnings increase 8,400,000 $
NPV 7,200,000 $
b) Assets 532,500,000 $
NPV of project 7,200,000 Equity 539,700,000 $
Total assets 539,700,000 $ Total Debt & Equity 539,700,000 $
New share price 35.98 $
New shares issued 1,667,593
Price
c) Cash 60,000,000 $
Old assets 532,500,000
NPV of project 7,200,000 Equity 599,700,000 $
Total assets 599,700,000 $ Total Debt & Equity 599,700,000 $
Total
New shares outstanding 16,667,593
New share price 35.98 $
d) PV of the project 67,200,000 $
Old assets 532,500,000 $
PV of project 67,200,000 Equity 599,700,000 $
Total assets 599,700,000 $ Total Debt & Equity 599,700,000 $
4. a) Market value of company 601,620,000 $
b) Value unlevered 599,700,000 $ Debt 60,000,000 $
Tax shield 24,000,000 Equity 563,700,000
Total assets 623,700,000 $ Total Debt & Equity 623,700,000 $
New stock price 37.58 $
5
Stephenson Real Estate Recapitalization
Chapter 17
Input Area:
Probability
Without
expansion
Recession 0.30 30,000,000 $
Normal 0.50 35,000,000 $
Expansion 0.20 51,000,000 $
Face value of debt 34,000,000 $
Cost of expansion 8,400,000 $
Output Area:
1) Expected value of firm
Without expansion 36,700,000 $
With expansion 45,700,000 $
Expected NPV 600,000 $
2) Value of debt
Without
expansion
Recession 30,000,000 $
Normal 34,000,000 $
Expansion 34,000,000 $
Expected value of debt 32,800,000 $
3) Value of equity
Without
expansion
Recession - $
Normal 1,000,000 $
Expansion 17,000,000 $
Expected value of equity 3,900,000 $
Bondholder gain with expansion 900,000 $
McKenzie Corporation's Capital Budgeting
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 $
Input area:
2010 2011 2012
Sales 2,115.00 $ 2,371.00 $ 2,555.00 $
Costs 562.00 738.00 776.00
Depreciation 373.00 397.00 413.00
EBT 1,180.00 $ 1,236.00 $ 1,366.00 $
Tax 472.00 494.40 546.40
Net income 708.00 $ 741.60 $ 819.60 $
Capital expenditures 215 $ 186 $ 234 $
Change in NWC (94) $ (143) $ 78 $
Asset sales 1,092 $ 791 $
Interest payments 1,482 $ 1,430 $ 1,534 $
Terminal growth rate 3.50%
Terminal D/E 25.00%
Return on assets 14.00%
Pretax cost of debt 12.50%
Pretax debt after Year 5 8.00%
Tax rate 40.00%
Shares outstanding (million) 167
Output area:
Unlevered cash flows 2,052.00 $ 1,886.60 $ 920.60 $
1) PV unlevered CF 4,928.50 $
Terminal value of future
unlevered CF in Year 5 9,583.11 $
Value today of terminal
2) value 4,977.17 $
Interest tax shield 592.80 $ 572.00 $ 613.60 $
The Leveraged Buyout of Cheek Products, Inc.
Chapter 18
3) PV of interest tax shield 2,126.55 $
Levered equity return 15.20%
WACC 13.36%
Terminal value of company 10,205.14 $
Terminal value of tax shields 622.03 $
Value of terminal tax shields
4) today 345.18 $
PV unlevered CF 9,905.67 $
PV tax shields 2,471.73 $
Value of company 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 $ 234 $
73 $ 83 $
1,495 $ 1,547 $
929.80 $ 972.20 $
598.00 $ 618.80 $
Input area:
Underwriter fee 7.00%
Legal fees and expenses 1,500,000 $
SEC registration fees 15,000 $
Filing fees 20,000 $
NASDAQ listing fee 100,000 $
Transfer agent fee 8,500 $
Engraving expenses 525,000 $
Other expenses 75,000 $
Audit cost/year 300,000 $
IPO size 70,000,000 $
Output area:
Underwriter fees 4,900,000 $
Total fees excluding underwriter fees 2,243,500 $
Total fees 7,143,500 $
Net amount raised 65,100,000 $
Fee as a percentage of funds raised 10.97%
East Coast Yachts Goes Public
Chapter 20
Input area:
Purchase price 2,500,000 $
Year 1 depreciation 0.333
Year 2 depreciation 0.444
Year 3 depreciation 0.148
Year 4 depreciation 0.074
Salvage value 300,000 $
Lease payment 650,000 $
Security deposit 150,000 $
Cost of debt 11%
Tax rate 35%
Alternative lease:
Lease payments 1,150,000 $
Year 2 salvage value 1,000,000 $
Output area:
1) Aftertax cost of debt 7.15%
Year 0 Year 1
Saved purchase 2,500,000 $
Lost salvage value
Lost depreciation tax shield (291,375)
Security deposit (150,000)
Lease payment (650,000) (650,000)
Tax on lease payment 227,500 227,500
Cash flow from leasing 1,927,500 $ (713,875) $
NAL 22,917.57 $
2) Book value in Year 2 557,500 $
Year 0 Year 1
Saved purchase 2,500,000 $
Lost salvage value
Chapter 21
The Decision to Lease or Buy at Warf Computers
Lost depreciation tax shield (291,375)
Lease payment (1,150,000) (1,150,000)
Tax on lease payment 402,500 402,500
Cash flow from leasing 1,752,500 $ (1,038,875) $
NAL (291,533.21) $
PV of lease payments $2,186,036.04
Year 2 Year 3 Year 4
(195,000)
(388,500) (129,500) (64,750)
150,000
(650,000) (650,000)
227,500 227,500
(811,000) $ (552,000) $ (109,750) $
Year 2
(845,125)
The Decision to Lease or Buy at Warf Computers
(388,500)
(1,233,625) $
Input Area:
Current stock price 50 $
Exercise price 55 $
Expiration (months) 6
Risk-free rate 4%
Standard deviation 78.82%
Output Area:
d
1
0.1435
d
2
(0.4138)
N(d
1
) 0.5571
N(d
2
) 0.3395
Call 9.55 $
Chapter 22
Clissold Industries Options
Microsoft Excel 12.0 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 Original Value Final Value
$D$22 Call 22.48 $ 27.65 $
Adjustable Cells
Cell Name Original Value Final Value
$D$11 Standard deviation 78.59% 144.80%
Constraints
NONE
Microsoft Excel 12.0 Answer Report
Worksheet: [Jaffe 9th edition Case Solutions.xlsx]Chapter 22
Report Created: 1/12/2009 1:17:37 PM
Target Cell (Value Of)
Cell Name Original Value Final Value
$D$22 Call 23.30 $ 19.45 $
Adjustable Cells
Cell Name Original Value Final Value
$D$11 Standard deviation 144.80% 109.42%
Constraints
NONE
Microsoft Excel 12.0 Answer Report
Worksheet: [Jaffe 9th edition Case Solutions.xlsx]Chapter 22
Report Created: 1/12/2009 1:18:12 PM
Target Cell (Value Of)
Cell Name Original Value Final Value
$D$22 Call 15.41 $ 11.95 $
Adjustable Cells
Cell Name Original Value Final Value
$D$11 Standard deviation 109.42% 83.16%
Constraints
NONE
Microsoft Excel 12.0 Answer Report
Worksheet: [Jaffe 9th edition Case Solutions.xlsx]Chapter 22
Report Created: 1/12/2009 1:18:43 PM
Target Cell (Value Of)
Cell Name Original Value Final Value
$D$22 Call 10.16 $ 9.55 $
Adjustable Cells
Cell Name Original Value Final Value
$D$11 Standard deviation 83.16% 78.82%
Constraints
NONE
Input Area:
Current stock price 36.28 $
Exercise price 40 $
Expiration (years) 10
Risk-free rate 4.40%
Standard deviation 60.00%
Output Area:
d
1
1.1291
d
2
(0.7682)
N(d
1
) 0.8706
N(d
2
) 0.2212
Call 25.89 $
Chapter 23
Exotic Cuisine Employee Stock Options
Chapter 24
Input area:
Industry PE 12.50
Company EPS 1.60 $
Conversion price (stock) 25.00 $
Maturity (years) 20.00 $
Convertible bond coupon 6%
Conversion value of bond 800 $
Plain vanilla coupon 7%
Output area:
Stock price 20.00 $
Intrinsic bond value 893.22 $
Floor value 893.22 $
Conversion ratio 32.00
Conversion premium 25.00%
Option value 106.78 $
S&S Air's Convertible Bond
Chapter 25
Input area:
Mortgage value 500,000 $
Years 25
Interest rate 6.50%
4) Interest rate 7.40%
5) Interest rate 5.80%
Output area:
1) Mortgage payment 3,376.04 $
4) Mortgage value 460,892.97 $
5) Mortgage value 534,071.83 $
Williamson Mortgage, Inc.
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A B C D E F G
Input Area:
A/R 553,000 $
Percent uncollectible 10%
Collection period 57
% of purchases for next Q sales 50%
Suppliers paid 53
% of sales for expenses 25%
Interest and dividends 148,000 $
Outlay in third Q 260,000 $
Beginning cash balance 149,500 $
Target cash balance 90,000 $
Borrowing rate 1.2%
Invested securities 0.5%
Beginning short-term borrowing - $
Q1 Q2 Q3 Q4
Last years' sales 735,000 $ 761,000 $ 817,000 $ 709,000 $
Growth rate in sales 8.00%
Output Area:
Sales next year 793,800.00 $ 821,880.00 $ 882,360.00 $ 765,720.00 $
Sales following year 857,304.00 $
Q1 Q2 Q3 Q4
Collections from previous quarter 497,700.00 $ 502,740.00 $ 520,524.00 $ 558,828.00 $
Collections from current quarter sales 291,060.00 301,356.00 323,532.00 280,764.00
Payments to suppliers for previous quarter (233,730.00) (241,998.00) (259,806.00) (225,462.00)
Payments to suppliers for current quarter (168,942.00) (181,374.00) (157,398.00) (176,223.60)
Expenses (198,450.00) (205,470.00) (220,590.00) (191,430.00)
Dividends and interest (148,000.00) (148,000.00) (148,000.00) (148,000.00)
Outlay (260,000.00)
Net cash flow 39,638.00 $ 27,254.00 $ (201,738.00) $ 98,476.40 $
Chapter 26
Keafer Manufacturing Working Capital Management
Quarterly cash flow
44
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50
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81
A B C D E F G
Q1 Q2 Q3 Q4
Beginning cash balance 149,500.00 $ 189,138.00 $ 216,392.00 $ 14,654.00 $
Net cash inflow 39,638.00 27,254.00 (201,738.00) 98,476.40
Ending cash balance 189,138.00 $ 216,392.00 $ 14,654.00 $ 113,130.40 $
Minimum cash balance 90,000.00 90,000.00 90,000.00 90,000.00
Cumulative surplus (deficit) 99,138.00 $ 126,392.00 $ (75,346.00) $ 23,130.40 $
Target cash balance 90,000.00 $ 90,000.00 $ 90,000.00 $ 90,000.00 $
Net cash inflow 39,638.00 27,254.00 (201,738.00) 98,476.40
New short-term investments (39,935.50) (27,751.18) - (23,674.03)
Income on short-term investments 297.50 497.18 635.93 -
Short-term investments sold - - 127,186.68 -
New short-term borrowing - - 73,915.39 -
Interest on short-term borrowing - - - (886.98)
Short-term borrowing repaid - - - (73,915.39)
Ending cash balance 90,000.00 $ 90,000.00 $ 90,000.00 $ 90,000.00 $
Minimum cash balance (90,000.00) (90,000.00) (90,000.00) (90,000.00)
Cumulative surplus (deficit) - $ - $ - $ - $
Beginning short-term investments 59,500.00 $ 99,435.50 $ 127,186.68 $ - $
Ending short-term investments 99,435.50 127,186.68 - 23,674.03
Beginning short-term debt - - - 73,915.39
Ending short-term debt - $ - $ 73,915.39 $ - $
Q1: Excess funds at start of quarter of $59,500.00 earns $297.50 in income.
Q2: Excess funds at start of quarter of $99,435.50 earns $497.18 in income.
Q3: Excess funds at start of quarter of $127,186.68 earns $635.93 in income.
Q4: Shortage of funds at start of quarter of $73,915.39 costs $886.98 in interest.
Net cash cost
Q1 297.50 $
Q2 497.18
Q3 635.93
Q4 (886.98)
Cash generated by short-term financing 543.63 $
Cash Balance
Short-term Financial Plan
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H
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H
Microsoft Excel 12.0 Answer Report
Worksheet: [Jaffe 9th edition Case Solutions.xlsx]Chapter 26
Report Created: 7/15/2009 4:05:13 PM
Target Cell (Value Of)
Cell Name Original Value Final Value
$F$68 Ending short-term debt Q3 73,915.39 $ - $
Adjustable Cells
Cell Name Original Value Final Value
$D$24 Growth rate in sales Q1 8.00% 48.00%
Constraints
NONE
Chapter 27
Input Area:
Number of lockboxes 4
Daily payments 235,000 $
Investment account rate 0.068%
Wire transfer cost 0.20%
Sweep time 14
Money market yield 0.075%
ACH transfer cost 200 $
Output:
1. FVA $13,191,889.06
2. FVA 13,203,190.71 $
The company should go ahead with the plan.
3. ACH transfer cost 400.98 $
Cash Management at Richmond Corp.
Input Area:
Sales Default rate
Current policy $ 140,000,000 1.90%
Option 1 $ 158,000,000 2.90%
Option 2 $ 149,000,000 2.20%
Option 3 $ 167,000,000 2.50%
Variable costs 45%
Interest rate 6.00%
Output Area:
Daily interest rate 0.01597%
Current policy:
Daily sales 383,561.64 $
Variable costs (daily) 172,602.74 $
Defaults on sales (daily) 7,287.67 $
Administrative costs (daily) 6,136.99 $
Interest rate 0.6085%
NPV 32,291,008.61 $
Option 1:
Daily sales 432,876.71 $
Variable costs (daily) 194,794.52 $
Defaults on sales (daily) 12,553.42 $
Administrative costs (daily) 11,687.67 $
Interest rate 0.6567%
NPV 32,369,467.12 $
Option 2:
Credit Policy at Braam Industries
Chapter 28
Daily sales 408,219.18 $
Variable costs (daily) 183,698.63 $
Defaults on sales (daily) 8,980.82 $
Administrative costs (daily) 7,756.16 $
Interest rate 0.8175%
NPV 25,233,509.84 $
Option 3:
Daily sales 457,534.25 $
Variable costs (daily) 205,890.41 $
Defaults on sales (daily) 11,438.36 $
Administrative costs (daily) 9,608.22 $
Interest rate 0.7853%
NPV 29,158,049.54 $
Administrative costs Receivables period
1.60% 38
2.70% 41
1.90% 51
2.10% 49
Credit Policy at Braam Industries
Chapter 29
Input Area:
Year 1
Sales 640,000,000 $
Production costs 449,000,000
Depreciation 60,000,000
Other expenses 64,000,000
EBIT 67,000,000 $
Interest 15,200,000
Taxable income 51,800,000 $
Taxes (40%) 20,720,000
Net income 31,080,000 $
Investments
Net working capital 16,000,000 $
Fixed assets 12,000,000
Total 28,000,000 $
Sources of financing
New debt 28,000,000 $
Profit retention -
Total 28,000,000 $
Tax rate 40%
Dividends from Hybrid today 120,000,000 $
Year 2 tax-loss carryforward 20,000,000 $
Year 3 tax-loss carryforward 20,000,000 $
Terminal value of Hybrid in five years 720,000,000 $
Debt level in five years 240,000,000 $
Current target debt-equity ratio 0.5000
New target debt-equity ratio 1.0000
Risk-free rate 6%
Expected return on market 13%
Company acquirer WACC 11%
Cost of debt for each company 8%
Current beta for Hydrid equity 1.30
Loan to buy company 88,000,000 $
Cash paid 440,000,000 $
Shares outstanding in target 6,400,000
The Birdie Golf-Hybrid Golf Merger
Stock price of acquirer 94.00 $
Shares outstanding in acquirer 14,400,000
Output Area:
Current debt weight 0.33
Current equity weight 0.67
Beta of debt 0.29
Hybrid beta 0.96
Discount rate for normal operations 12.73%
New debt weight 0.50
New equity weight 0.50
New stock beta 1.59
Discount rate for dividends 17.13%
Year 0
Acquisition of Hybrid (440,000,000) $
Dividends from Hybrid 120,000,000 $
Tax-loss carryforwards
Terminal value of equity
Terminal value of debt
Total (320,000,000) $
Present values
Acquisition of Hybrid (440,000,000) $
Dividends from Hybrid 120,000,000 $
Tax-loss carryforwards
Terminal value of equity
Terminal value of debt
Total (320,000,000) $
1) NPV 31,890,413.71 $
2) Highest price to offer 471,890,413.71 $
Price per share offered 68.75 $
Highest share price to offer 73.73 $
3) New share price 96.21 $
Exchange ratio 0.7145
4) Highest exchange ratio 0.7314
Year 2 Year 3 Year 4 Year 5
720,000,000 $ 800,000,000 $ 900,000,000 $ 1,000,000,000 $
504,000,000 560,000,000 632,000,000 705,000,000
64,000,000 66,000,000 66,400,000 67,000,000
72,000,000 80,000,000 90,400,000 97,000,000
80,000,000 $ 94,000,000 $ 111,200,000 $ 131,000,000 $
17,600,000 19,200,000 20,000,000 21,600,000
62,400,000 $ 74,800,000 $ 91,200,000 $ 109,400,000 $
24,960,000 29,920,000 36,480,000 43,760,000
37,440,000 $ 44,880,000 $ 54,720,000 $ 65,640,000 $
20,000,000 $ 20,000,000 $ 24,000,000 $ 24,000,000 $
20,000,000 14,400,000 96,000,000 5,600,000
40,000,000 $ 34,400,000 $ 120,000,000 $ 29,600,000 $
12,800,000 $ 12,800,000 $ 12,000,000 $ 9,600,000 $
27,200,000 21,600,000 21,600,000 20,000,000
40,000,000 $ 34,400,000 $ 33,600,000 $ 29,600,000 $
The Birdie Golf-Hybrid Golf Merger
Year 1 Year 2 Year 3 Year 4
31,080,000 $ 10,240,000 $ 23,280,000 $ 33,120,000 $
20,000,000 20,000,000
31,080,000 $ 30,240,000 $ 43,280,000 $ 33,120,000 $
26,533,865 $ 7,463,438 $ 14,485,766 $ 17,594,151 $
17,146,776 $ 15,876,645 $
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 $
Chapter 31
Input Area:
Sales per month 8,000,000 €
Commission 5%
Current exhange rate ($/€) 1.45 $
Production costs 80%
3) Exhange rate ($/€) 1.30 $
Output Area:
Sales less commission 7,600,000 €
Dollar value of sales 11,020,000 $
Total sales 11,600,000 $
Production costs 9,280,000 $
Profit at current exchange rate 1,740,000 $
3) At revised exchange rate:
Dollar value of sales 9,880,000 $
Production costs 9,280,000 $
Profit at new exchange rate 600,000 $
Breakeven exchange rate ($/€) 1.2211 $
East Coast Yachts Goes International

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