FCF 12th Edition Case Solutions

Case Solutions
Input boxes in tan

Output boxes in yellow
Given data in blue
Calculations in red
Answers in green
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equire that
Chapter 2
Cash Flows and Financial Statements at Sunset Boards
Input area:
2017 2018
Cost of goods sold $ 255,605 $ 322,742
Cash $ 36,884 $ 55,725
Depreciation $ 72,158 $ 81,559
Interest expense $ 15,687 $ 17,980
Selling & Administrative $ 50,268 $ 65,610
Accounts payable $ 26,186 $ 44,318
Net fixed assets $ 318,345 $ 387,855
Sales $ 501,441 $ 611,224
Accounts receivable $ 26,136 $ 33,901
Notes payable $ 29,712 $ 32,441
Long-term debt $ 160,689 $ 175,340
Inventory $ 50,318 $ 67,674
New equity $ - $ 19,500
Tax rate 21%

Dividend percentage 40%
Output area:
2017 Income Statement
Sales $ 501,441
Cost of goods sold 255,605
Selling & Administrative 50,268
Depreciation 72,158
EBIT $ 123,410
Interest 15,687
EBT $ 107,723
Taxes 22,622
Net income $ 85,101
Dividends $ 34,040
Addition to retained earnings $ 51,061
2018 Income Statement

Sales $ 611,224
Cost of goods sold 322,742
Selling & Administrative 65,610
Depreciation 81,559
EBIT $ 141,313
Interest 17,980
EBT $ 123,333
Taxes 25,900
Net income $ 97,433
Dividends $ 38,973
Addition to retained earnings $ 58,460
Balance sheet as of Dec. 31, 2017

Cash $ 36,884 Accounts payable $ 26,186
Accounts receivable 26,136 Notes payable 29,712
Inventory 50,318 Current liabilities $ 55,898
Current assets $ 113,338
Long-term debt $ 160,689
Net fixed assets $ 318,345 Owners' equity $ 215,096
Total assets $ 431,683 Total liab. & equity $ 431,683
Balance sheet as of Dec. 31, 2018

Cash $ 55,725 Accounts payable $ 44,318
Accounts receivable 33,901 Notes payable 32,441
Inventory 67,674 Current liabilities $ 76,759
Current assets $ 157,300
Long-term debt $ 175,340
Net fixed assets $ 387,855 Owners' equity $ 293,056
Total assets $ 545,155 Total liab. & equity $ 545,155
2017 2018
Operating cash flow $ 172,946 $ 196,972
Capital Spending
Ending net fixed assets $ 387,855
- Beginning net fixed assets 318,345
+ Depreciation 81,559
Net capital spending $ 151,069
Change in Net Working Capital

Ending NWC $ 80,541
-Beginning NWC 57,440
Change in NWC $ 23,101
Cash Flow from Assets

Operating cash flow $ 196,972
- Net capital spending 151,069
-Change in NWC 23,101
Cash flow from assets $ 22,802
Cash Flow to Creditors

Interest paid $ 17,980
-Net New Borrowing 14,651
Cash flow to Creditors $ 3,329
Cash Flow to Stockholders

Dividends paid $ 38,973
-Net new equity raised 19,500
Cash flow to Stockholders $ 19,473
Chapter 3
Ratios and Financial Planning at S&S Air
Input area:
Tax rate 25%
Sales $ 46,298,115
COGS 34,536,913
Other expenses 5,870,865
Depreciation 2,074,853
EBIT $ 3,815,484
Interest 725,098
Taxable income $ 3,090,386
Taxes (25%) 772,597
Net income $ 2,317,789
Dividends $ 705,000
Add to RE $ 1,612,789
Assets Liabilities & Equity

Current Assets Current Liabilities
Cash $ 524,963 Accounts Payable $ 1,068,356
Accounts rec. 843,094 Notes Payable 2,439,553
Inventory 1,235,161 Total CL $ 3,507,909
Total CA $ 2,603,218
Long-term debt $ 6,300,000
Shareholder Equity
Fixed assets Common stock $ 460,000
Net PP&E $ 20,381,945 Retained earnings 12,717,254
Total Equity $ 13,177,254
Total Assets $ 22,985,163 Total L&E $ 22,985,163
Output area:
Current ratio 0.74

Quick ratio 0.39
Cash ratio 0.15
Total asset turnover 2.01
Inventory turnover 27.96
Receivables turnover 54.91
Total debt ratio 0.43
Debt-equity ratio 0.74
Equity multiplier 1.74
Times interest earned 5.26
Cash coverage ratio 8.12
Profit margin 5.01%
Return on assets 10.08%
Return on equity 17.59%
Chapter 4
Planning for Growth at S&S Air
Input area:
Sales $ 46,298,115
COGS 34,536,913
EBIT $ 3,815,484
Interest 725,098
Taxes (40%) 772,597
Dividends $ 705,000
Add to RE $ 1,612,789

Total CA $ 2,603,218
Fixed assets
Net PP&E $ 20,381,945 Shareholder Equity
Common stock $ 460,000
Retained earnings 12,717,254
Growth rate 12%

Minimum FA purchase $ 5,000,000
Output area:
Return on assets 10.08%

Return on equity 17.59%
Retention ratio 0.70

Internal growth rate 7.55%
Sustainable growth rate 13.95%
Sales $ 51,853,889
COGS 38,681,343
EBIT $ 4,522,324
Interest 725,098
Taxes (40%) 1,518,891
Dividends $ 693,000
Add to RE 1,585,336
Total CA $ 2,915,604
Fixed assets
EFN $ 1,044,681
EFN if minimum FA purchase is $ 5,000,000
Depreciation as a percentage of sales 10.18%

New fixed assets $ 25,381,945
Sales $ 51,853,889
COGS 38,681,343
EBIT $ 4,013,332
Interest 725,098
Taxes (40%) 1,315,293
Dividends $ 600,108
Add to RE 1,372,833

Total CA $ 2,915,604
Fixed assets
EFN $ 3,811,351
Chapter 6
The MBA Decision
Input area:
Current salary $ 53,000

Years until retirement 38
Salary increase 3%
Tax rate 26%
Wilton
Tuition per year $ 58,000
Books & Supplies $ 2,000
Signing bonus $ 10,000
Starting salary $ 87,000
Salary increase 4%
Tax rate 31%
Mount Perry
Tuition per year $ 75,000
Books & Supplies $ 4,200
Signing bonus $ 8,000
Starting salary $ 78,000
Salary increase 3.5%
Tax rate 29%
Both schools
Health insurance $ 3,000
Room & Board reduction $ 4,000
Discount rate 5.50%
Output area:
3. Current job
Aftertax income $ 39,220.00
Present value of salary $ 938,149.63
Wilton MBA
Direct costs 59,000.00
PV of tuition & expenses $ (114,924.17)
Aftertax bonus $ 6,900.00
PV of bonus $ 6,199.32
Aftertax salary $ 60,030.00
PV of salary in two years $ 1,612,050.35
Value of salary today $ 1,448,350.53
PV of attending Wilton $ 1,339,625.68
Mount Perry MBA

PV of tuition & expenses $ (78,200.00)
PV of signing bonus $ 5,383.89
Aftertax salary $ 55,380.00
PV of salary in one year $ 1,405,123.99
PV of salary today $ 1,331,871.08
PV of attending Mt. Perry $ 1,259,054.96
5. Current job PV minus

bonus after Wilton costs $ 1,046,874.48
Aftertax beginning salary $ 38,983.82
Pretax beginning salary $ 56,498.28

Chapter 8
Stock Valuation at Ragan, Inc.
Input area:
Shares owned by each sibling 50,000

Ragan EPS $ 3.15
Dividend to each sibling $ 45,000
Ragan ROE 17%
Ragan required return 14%
EPS DPS Stock price ROE R

Artic Cooling, Inc. $ 1.30 $ 0.16 $ 25.34 8.50% 10.00%
National Heating & Cooling 1.95 0.23 29.85 10.50% 13.00%
Expert HVAC Corp. (0.37) 0.14 22.13 9.78% 12.00%
Industry average $ 0.96 $ 0.18 $ 25.77 9.59% 11.67%
Expert EPS w/o write-off $ 1.10
Output area:
1) Total earnings $ 315,000

Retention ratio 0.71
Growth rate 12.14%
Current dividend per share $ 0.90
Dividend per share next year $ 1.01
Value per share $ 54.35
2) Industry EPS $ 1.45

Industry payout ratio 12.18%
Industry retention ratio 87.82%
Industry growth rate 8.42%
Year Dividend
1 $ 1.01
2 $ 1.13
3 $ 1.27
4 $ 1.42
5 $ 1.60
6 $ 1.73
Stock value in Year 5 $ 53.38
Stock price today $ 35.30
3) Industry PE 17.77
Ragan PE (original assumption) 17.25
Ragan PE (revised assumption) 11.21
Stock price implied by

industry PE $ 55.99
5) ROE 11.79%
Chapter 9
Bullock Gold Mining
Input area:
Year Cash flow

0 $ (635,000,000)
1 $ 89,000,000
2 $ 105,000,000
3 $ 130,000,000
4 $ 173,000,000
5 $ 205,000,000
6 $ 155,000,000
7 $ 145,000,000
8 $ 122,000,000
9 $ (45,000,000)
Required return 12%
Output area:
Payback period 4.67
IRR 13.02% =IRR(D8:D17)

IRR -74.18% =IRR(D8:D17,-0.99)
MIRR 12.45% =MIRR(D8:D17,D19,D19)
Profitability index 1.04 =NPV(D19,D9:D17)/-D8
NPV $ 24,132,970.75 =NPV(D19,D9:D17)+D8

Chapter 10
Conch Republic Electronics, Part 1
Input Area:
Equipment $ 43,500,000
Salvage value $ 6,500,000
R&D $ 750,000 sunk cost
Marketing study $ 200,000 sunk cost
Year 1 Year 2 Year 3

Sales(units) 155,000 165,000 125,000
Depreciation rate 14.29% 24.49% 17.49%
Sales of old phone 95,000 65,000
Lost sales 30,000 30,000
Price $ 535
VC $ 220
FC $ 6,400,000
Price of old phone $ 385
Revised price
of old phone $ 215
VC of old phone $ 145
Tax rate 21%
NWC percentage 20%
Required return 12%
Output Area:
Old phone price reduction $ 170
Sales Year 1 Year 2 Year 3

New $82,925,000 $88,275,000 $66,875,000
Lost sales (11,550,000) (11,550,000)
Lost rev. (11,050,000) (5,950,000)
Net sales $60,325,000 $70,775,000 $66,875,000
VC
New $34,100,000 $36,300,000 $27,500,000
Lost sales (4,350,000) (4,350,000)
$29,750,000 $31,950,000 $27,500,000
Sales $60,325,000 $70,775,000 $66,875,000

VC 29,750,000 31,950,000 27,500,000
Fixed costs 6,400,000 6,400,000 6,400,000
Dep 6,216,150 10,653,150 7,608,150
EBT $17,958,850 $21,771,850 $25,366,850
Tax 3,771,359 4,572,089 5,327,039
NI $14,187,492 $17,199,762 $20,039,812
+Dep 6,216,150 10,653,150 7,608,150
OCF $20,403,642 $27,852,912 $27,647,962
NWC
Beg $0 $12,065,000 $14,155,000
End 12,065,000 14,155,000 13,375,000
NWC CF ($12,065,000) ($2,090,000) $780,000
Net CF $8,338,642 $25,762,912 $28,427,962
Salvage
BV of equipment $ 9,704,850
Taxes 673,019
Salvage CF $ 7,173,019
Net CF Time
0 $ (43,500,000)
1 8,338,642
2 25,762,912 $ (9,398,447)
3 28,427,962
4 22,935,712
5 31,761,524
Payback period 2.331

PI 1.858
IRR 37.51%
NPV $37,316,113.42
Year 4 Year 5
95,000 75,000
12.49% 8.93%
Year 4 Year 5
$50,825,000 $40,125,000
$50,825,000 $40,125,000
$20,900,000 $16,500,000
$20,900,000 $16,500,000
$50,825,000 $40,125,000
20,900,000 16,500,000
6,400,000 6,400,000
5,433,150 3,884,550
$18,091,850 $13,340,450
3,799,289 2,801,495
$14,292,562 $10,538,956
5,433,150 3,884,550
$19,725,712 $14,423,506
$13,375,000 $10,165,000
10,165,000 0
$3,210,000 $10,165,000
$22,935,712 $24,588,506
Chapter 11
Conch Republic Electronics, Part 2
Input Area:
Equipment $ 43,500,000
Salvage value $ 6,500,000
R&D $ 750,000 sunk cost
Marketing study $ 200,000 sunk cost

Sales(units) 155,000 165,000 125,000
Depreciation rate 14.29% 24.49% 17.49%
Sales of old PDA 95,000 65,000
Lost sales 30,000 30,000
Price $ 535
VC $ 220
FC $ 6,400,000
Price of old PDA $ 385
Price reduction
of old PDA $ 215
VC of old PDA $ 145
Tax rate 21%
NWC percentage 20%
Required return 12%
Sensivity analysis
New price $ 540
Quantity change 100 NOTE: Change in units per year
Output Area:
Sensitivity to change in price

New $83,700,000 $89,100,000 $67,500,000
Lost sales (11,550,000) (11,550,000)
Lost rev. (11,050,000) (5,950,000)
Net sales $61,100,000 $71,600,000 $67,500,000
VC
New $34,100,000 $36,300,000 $27,500,000
Lost sales 4,350,000 4,350,000
$29,750,000 $31,950,000 $27,500,000
Sales $61,100,000 $71,600,000 $67,500,000

VC 29,750,000 31,950,000 27,500,000
Fixed costs 6,400,000 6,400,000 6,400,000
Dep 6,216,150 10,653,150 7,608,150
EBT $18,733,850 $22,596,850 $25,991,850
Tax 3,934,109 4,745,339 5,458,289
NI $14,799,742 $17,851,512 $20,533,562
+Dep 6,216,150 10,653,150 7,608,150
OCF $21,015,892 $28,504,662 $28,141,712
NWC
Beg $0 $12,220,000 $14,320,000
End 12,220,000 14,320,000 13,500,000
NWC CF ($12,220,000) ($2,100,000) $820,000
Net CF $8,795,892 $26,404,662 $28,961,712
Salvage
BV of equipment $9,704,850
Taxes 673,019
Salvage CF $7,173,019
Net CF Time
0 $ (43,500,000)
1 8,795,892
2 26,404,662
3 28,961,712
4 23,340,962
5 32,152,774
NPV $ 39,095,433.68
DNPV/DP $ 355,864.05
Sensitivity to change in quantity

New $82,978,500 $88,328,500 $66,928,500
Lost sales (11,550,000) (11,550,000)
Lost rev. (11,050,000) (5,950,000)
Net sales $60,378,500 $70,828,500 $66,928,500
VC
New $34,122,000 $36,322,000 $27,522,000
Lost sales 4,350,000 4,350,000
$29,772,000 $31,972,000 $27,522,000
Sales $60,378,500 $70,828,500 $66,928,500

VC 29,772,000 31,972,000 27,522,000
Fixed costs 6,400,000 6,400,000 6,400,000
Dep 6,216,150 10,653,150 7,608,150
EBT $17,990,350 $21,803,350 $25,398,350
Tax 3,777,974 4,578,704 5,333,654
NI $14,212,377 $17,224,647 $20,064,697
+Dep 6,216,150 10,653,150 7,608,150
OCF $20,428,527 $27,877,797 $27,672,847
NWC
Beg $0 $12,075,700 $14,165,700
End 12,075,700 14,165,700 13,385,700
NWC CF ($12,075,700) ($2,090,000) $780,000
Net CF $8,352,827 $25,787,797 $28,452,847
Salvage
BV of equipment $9,704,850
Taxes 673,019
Salvage CF $7,173,019
Net CF Time
0 $ (43,500,000)
1 8,352,827
2 25,787,797
3 28,452,847
4 22,960,597
5 31,797,109
NPV $37,402,336.17
DNPV/DQ $ 862.23
Year 4 Year 5
95,000 75,000
12.49% 8.93%
Year 4 Year 5
$51,300,000 $40,500,000
$51,300,000 $40,500,000
$20,900,000 $16,500,000
$20,900,000 $16,500,000
$51,300,000 $40,500,000
20,900,000 16,500,000
6,400,000 6,400,000
5,433,150 3,884,550
$18,566,850 $13,715,450
3,899,039 2,880,245
$14,667,812 $10,835,206
5,433,150 3,884,550
$20,100,962 $14,719,756
$13,500,000 $10,260,000
10,260,000 0
$3,240,000 $10,260,000
$23,340,962 $24,979,756
Year 4 Year 5
$50,878,500 $40,178,500
$50,878,500 $40,178,500
$20,922,000 $16,522,000
$20,922,000 $16,522,000
$50,878,500 $40,178,500
20,922,000 16,522,000
6,400,000 6,400,000
5,433,150 3,884,550
$18,123,350 $13,371,950
3,805,904 2,808,110
$14,317,447 $10,563,841
5,433,150 3,884,550
$19,750,597 $14,448,391
$13,385,700 $10,175,700
10,175,700 0
$3,210,000 $10,175,700
$22,960,597 $24,624,091
Chapter 12
A Job at S&S Air
Input area:
10-year
annual return Standard deviation
Bledsoe S&P 500 Index Fund 6.88% 10.75%
Bledsoe Small-Cap Fund 9.29% 12.81%
Bledsoe Large Company Stock Fund 3.56% 10.99%
Bledsoe Bond Fund 5.27% 7.12%
Company stock expected return 17.00%

Company stock standard deviation 70.00%
Output area:
Risk-free rate
2007 4.52%
2008 1.24%
2009 0.15%
2010 0.14%
2011 0.60%
2012 0.08%
2013 0.05%
2014 0.03%
2015 0.04%
2016 0.21%
Averege risk-free rate 0.71%

Bledsoe S&P 500 Index Fund 0.5743
Bledsoe Small-Cap Fund 0.6701
Bledsoe Large Company Stock Fund 0.2597
Bledsoe Bond Fund 0.6410
Company stock 0.2328
Chapter 13
The Beta for Colgate-Palmolive
Input area:
Monthly
Risk-free Risk-free Stock price Return
0 Dec-11 $ 41.27
1 Jan-12 0.003 0.00021 $ 40.79 -0.0117
2 Feb-12 0.008 0.00063 $ 41.89 0.0271
3 Mar-12 0.007 0.00056 $ 43.96 0.0494
4 Apr-12 0.007 0.00056 $ 44.77 0.0183
5 May-12 0.008 0.00063 $ 44.48 -0.0065
6 Jun-12 0.008 0.00063 $ 47.10 0.0590
7 Jul-12 0.008 0.00069 $ 48.86 0.0374
8 Aug-12 0.008 0.00069 $ 48.38 -0.0098
9 Sep-12 0.009 0.00076 $ 48.80 0.0086
10 Oct-12 0.008 0.00069 $ 48.04 -0.0156
11 Nov-12 0.008 0.00063 $ 49.66 0.0337
12 Dec-12 0.006 0.00049 $ 47.85 -0.0365
13 Jan-13 0.006 0.00049 $ 49.42 0.0329
14 Feb-13 0.008 0.00069 $ 52.67 0.0658
15 Mar-13 0.008 0.00063 $ 54.33 0.0315
16 Apr-13 0.005 0.00042 $ 55.28 0.0175
17 May-13 0.003 0.00028 $ 53.56 -0.0312
18 Jun-13 0.004 0.00035 $ 53.05 -0.0095
19 Jul-13 0.003 0.00028 $ 55.76 0.0511
20 Aug-13 0.003 0.00028 $ 53.80 -0.0351
21 Sep-13 0.002 0.00014 $ 55.23 0.0265
22 Oct-13 0.004 0.00035 $ 60.61 0.0975
23 Nov-13 0.006 0.00049 $ 61.62 0.0167
24 Dec-13 0.006 0.00049 $ 61.06 -0.0091
25 Jan-14 0.003 0.00028 $ 57.63 -0.0561
26 Feb-14 0.004 0.00035 $ 59.14 0.0261
27 Mar-14 0.004 0.00035 $ 61.06 0.0325
28 Apr-14 0.003 0.00021 $ 63.69 0.0430
29 May-14 0.003 0.00021 $ 64.73 0.0163
30 Jun-14 0.003 0.00028 $ 64.52 -0.0032
31 Jul-14 0.003 0.00021 $ 60.31 -0.0653
32 Aug-14 0.003 0.00021 $ 61.58 0.0210
33 Sep-14 0.002 0.00014 $ 62.04 0.0076
34 Oct-14 0.002 0.00014 $ 63.98 0.0312
35 Nov-14 0.002 0.00014 $ 66.57 0.0405
36 Dec-14 0.003 0.00021 $ 66.19 -0.0057
37 Jan-15 0.003 0.00021 $ 64.93 -0.0190
38 Feb-15 0.002 0.00014 $ 68.10 0.0489
39 Mar-15 0.003 0.00021 $ 66.68 -0.0209
40 Apr-15 0.002 0.00014 $ 65.06 -0.0243
41 May-15 0.002 0.00014 $ 64.59 -0.0073
42 Jun-15 0.002 0.00014 $ 63.25 -0.0207
43 Jul-15 0.003 0.00021 $ 66.15 0.0458
44 Aug-15 0.006 0.00049 $ 61.08 -0.0766
45 Sep-15 0.002 0.00014 $ 61.71 0.0103
46 Oct-15 0.002 0.00014 $ 64.89 0.0515
47 Nov-15 0.011 0.00090 $ 64.23 -0.0101
48 Dec-15 0.019 0.00160 $ 65.15 0.0143
49 Jan-16 0.022 0.00181 $ 66.45 0.0199
50 Feb-16 0.026 0.00215 $ 64.59 -0.0280
51 Mar-16 0.025 0.00208 $ 69.52 0.0763
52 Apr-16 0.019 0.00160 $ 70.17 0.0093
53 May-16 0.023 0.00194 $ 69.66 -0.0072
54 Jun-16 0.023 0.00188 $ 72.42 0.0396
55 Jul-16 0.025 0.00208 $ 74.03 0.0221
56 Aug-16 0.025 0.00208 $ 73.94 -0.0012
57 Sep-16 0.024 0.00201 $ 73.74 -0.0027
58 Oct-16 0.028 0.00229 $ 71.36 -0.0322
59 Nov-16 0.038 0.00313 $ 65.23 -0.0859
60 Dec-16 0.043 0.00354 $ 65.44 0.0032
Last 36 months
Average return 0.09%
Standard deviation 0.1004%
Last 60 months
Average return 0.08%
Standard deviation 0.0810%
S&P 500 Stock risk S&P risk
S&P 500 return premium premium
1257.60
1312.41 0.0436 -0.0119 0.0434
1365.68 0.0406 0.0265 0.0400
1408.47 0.0313 0.0488 0.0308
1397.91 -0.0075 0.0177 -0.0081
1310.33 -0.0627 -0.0071 -0.0633
1362.16 0.0396 0.0584 0.0389
1379.32 0.0126 0.0367 0.0119
1406.58 0.0198 -0.0105 0.0191
1440.67 0.0242 0.0078 0.0235
1412.16 -0.0198 -0.0163 -0.0205
1416.18 0.0028 0.0331 0.0022
1426.19 0.0071 -0.0370 0.0066
1498.11 0.0504 0.0325 0.0499
1514.68 0.0111 0.0651 0.0104
1569.19 0.0360 0.0308 0.0354
1597.57 0.0181 0.0171 0.0177
1630.74 0.0208 -0.0315 0.0205
1606.28 -0.0150 -0.0099 -0.0153
1685.73 0.0495 0.0508 0.0492
1632.97 -0.0313 -0.0354 -0.0316
1681.55 0.0297 0.0263 0.0296
1756.54 0.0446 0.0971 0.0442
1805.81 0.0280 0.0162 0.0276
1848.36 0.0236 -0.0096 0.0231
1782.59 -0.0356 -0.0564 -0.0359
1859.45 0.0431 0.0258 0.0428
1872.34 0.0069 0.0321 0.0066
1883.95 0.0062 0.0428 0.0060
1923.57 0.0210 0.0161 0.0208
1960.23 0.0191 -0.0035 0.0188
1930.67 -0.0151 -0.0655 -0.0153
2003.37 0.0377 0.0208 0.0374
1972.29 -0.0155 0.0074 -0.0157
2018.05 0.0232 0.0311 0.0231
2067.56 0.0245 0.0404 0.0244
2058.90 -0.0042 -0.0060 -0.0044
1994.99 -0.0310 -0.0192 -0.0312
2104.50 0.0549 0.0487 0.0548
2067.89 -0.0174 -0.0211 -0.0176
2085.51 0.0085 -0.0244 0.0084
2107.39 0.0105 -0.0074 0.0104
2063.11 -0.0210 -0.0208 -0.0212
2103.84 0.0197 0.0456 0.0195
1972.18 -0.0626 -0.0771 -0.0631
1920.03 -0.0264 0.0102 -0.0266
2079.36 0.0830 0.0514 0.0828
2080.41 0.0005 -0.0110 -0.0004
2043.94 -0.0175 0.0127 -0.0191
1940.24 -0.0507 0.0181 -0.0525
1932.23 -0.0041 -0.0301 -0.0063
2059.74 0.0660 0.0742 0.0639
2065.30 0.0027 0.0077 0.0011
2096.95 0.0153 -0.0091 0.0134
2098.86 0.0009 0.0378 -0.0010
2173.60 0.0356 0.0201 0.0335
2170.95 -0.0012 -0.0033 -0.0033
2168.27 -0.0012 -0.0047 -0.0032
2126.15 -0.0194 -0.0345 -0.0217
2198.81 0.0342 -0.0890 0.0310
2238.83 0.0182 -0.0003 0.0147
0.26% 0.58%
3.67% 3.08%
0.84% 1.01%
3.61% 2.99%
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.573431
R Square 0.328824
Adjusted R 0.309083
Standard E 0.030613
Observatio 36
ANOVA
df SS MS F Significance F
Regression 1 0.01561 0.01561 16.65732 0.000256
Residual 34 0.031863 0.000937
Total 35 0.047474
Coefficients
Standard Error t Stat P-value Lower 95%Upper 95%
Lower 95.0%
Upper 95.0%
Intercept -0.001679 0.005167 -0.324973 0.747193 -0.01218 0.008821 -0.01218 0.008821
X Variable 0.685463 0.16795 4.081339 0.000256 0.344146 1.026779 0.344146 1.026779
RESIDUAL OUTPUT
ObservationPredicted YResiduals
1 -0.02626 -0.030094
2 0.027638 -0.001854
3 0.002835 0.029287
4 0.002428 0.040412
5 0.012594 0.003543
6 0.011194 -0.014688
7 -0.012159 -0.053328
8 0.023989 -0.00322
9 -0.012408 0.019839
10 0.014129 0.016948
11 0.015043 0.025339
12 -0.004693 -0.001263
13 -0.023099 0.003876
14 0.035852 0.012883
15 -0.013746 -0.00736
16 0.004066 -0.028498
17 0.005417 -0.012839
18 -0.016177 -0.004624
19 0.01171 0.033844
20 -0.044909 -0.032172
21 -0.0199 0.03011
22 0.055107 -0.003748
23 -0.001952 -0.009049
24 -0.01479 0.027505
25 -0.037694 0.055754
26 -0.005985 -0.024156
27 0.042127 0.032115
28 -0.000924 0.008641
29 0.007492 -0.016628
30 -0.00234 0.04009
31 0.021302 -0.001236
32 -0.003943 0.00065
33 -0.003906 -0.000798
34 -0.016566 -0.017959
35 0.019604 -0.108632
36 0.008369 -0.008691
0.1000
0.0800
0.0600
0.0400
0.0200
0.0000
Y
-0.0800 -0.0600 -0.0400 -0.0200 0.0000 0.0200 0.0400 0.0600 0.0800 0.1000 Y
Predicted Y
-0.0200
-0.0400
-0.0600
-0.0800
-0.1000
X Variable 1
0800 0.1000 Y
Predicted Y
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.565876
R Square 0.320216
Adjusted R 0.308495
Standard E 0.030098
Observatio 60
ANOVA
df SS MS F Significance F
Regression 1 0.024751 0.024751 27.32118 2.46E-06
Residual 58 0.052543 0.000906
Total 59 0.077293
Coefficients
Standard Error t Stat P-value Lower 95%Upper 95%
Lower 95.0%
Upper 95.0%
Y
Intercept 0.001196 0.004074 0.293662 0.770064 -0.006958 0.009351 -0.006958 0.009351
X Variable 0.685025 0.131056 5.226967 2.46E-06 0.422688 0.947361 0.422688 0.947361
-0.0800 -0.060
RESIDUAL OUTPUT
ObservationPredicted YResiduals
1 0.030909 -0.042822
2 0.028573 -0.002082
3 0.022279 0.026532
4 -0.00432 0.022059
5 -0.042149 0.035056
6 0.027864 0.030514
7 0.00935 0.027361
8 0.014259 -0.024734
9 0.017275 -0.009479
10 -0.012836 -0.003419
11 0.002718 0.030384
12 0.005705 -0.042689
13 0.035408 -0.002948
14 0.008297 0.056762
15 0.025421 0.005415
16 0.0133 0.003811
17 0.015229 -0.046744
18 -0.009316 -0.00054
19 0.034889 0.015945
20 -0.020434 -0.01492
21 0.02148 0.004865
22 0.031508 0.065598
23 0.020078 -0.003879
24 0.017004 -0.026608
25 -0.023369 -0.032985
26 0.030495 -0.004711
27 0.005707 0.026414
28 0.005301 0.037539
29 0.01546 0.000676
30 0.014061 -0.017555
31 -0.009276 -0.05621
32 0.026848 -0.006079
33 -0.009526 0.016957
34 0.016995 0.014082
35 0.017907 0.022474
36 -0.001816 -0.00414
37 -0.02021 0.000986
38 0.038704 0.010032
39 -0.010863 -0.010243
40 0.006938 -0.03137
41 0.008288 -0.01571
42 -0.013292 -0.007508
43 0.014577 0.030978
44 -0.042006 -0.035075
45 -0.017013 0.027223
46 0.057947 -0.006587
47 0.000924 -0.011924
48 -0.011906 0.024621
49 -0.034796 0.052855
50 -0.003106 -0.027034
51 0.044975 0.029267
52 0.001951 0.005766
53 0.010362 -0.019498
54 0.000536 0.037214
55 0.024163 -0.004096
56 -0.001066 -0.002226
57 -0.001029 -0.003675
58 -0.013681 -0.020844
59 0.022466 -0.111493
60 0.011238 -0.01156
0.1500
0.1000
0.0500
Y
Y
Predicted Y
0.0000
-0.0800 -0.0600 -0.0400 -0.0200 0.0000 0.0200 0.0400 0.0600 0.0800 0.1000
-0.0500
-0.1000
X Variable 1
Y
Predicted Y
0.1000
Chapter 14
The Cost of Capital for Swan Motors, Inc.
Input area:
Maturity Year Book value Quoted price YTM

2019 $ 835 98.200 1.121%
2021 $ 1,200 94.080 2.789%
BV of debt (balance sheet) $ 2,035 million

BV per share $ 17.890
Stock price $ 254.61
Market capitalization (billions) $ 40.96
Shares outstanding (millions) 160.87
Most recent dividend $ -
Beta 1.190
3-month Treasury bill rate 0.46%
Market risk premium 7.00%
Tax rate 21%
Output area:
RE from CAPM 8.79%
Book value Percent Market value

Maturity Year (millions) of total (millions)
2019 $ 835 0.41 819.97
2021 1,200 0.59 1,128.96
Total $ 2,035 1.00 $ 1,948.93
Weights
Book value of debt $ 2,035.000 million 0.4142
Book value of equity $ 2,877.964 million 0.5858
Book value of company $ 4,912.964 million
Market value of debt $ 1,948.930 million 0.0454

Market value of equity $ 40,960.000 million 0.9546
Market value of company $ 42,908.930 million
WACC using book value 5.84%
WACC using market value 8.47%

Percent Yield to Book Market
of total Maturity values values
0.42 1.121% 0.46% 0.47%
0.58 2.789% 1.64% 1.62%
1.00 2.10% 2.09%
Chapter 15
S&S Air Goes Public
Input area:
Underwriter fee 7.00%

Legal fees and expenses $ 2,100,000
SEC registration fees $ 12,000
Filing fees $ 15,000
NASDAQ listing fee $ 100,000
Transfer agent fee $ 6,500
Engraving expenses $ 520,000
Other expenses $ 110,000
Audit cost/year $ 300,000
IPO size $ 85,000,000
Output area:
Underwriter fees $ 5,950,000
Total fees excluding underwriter fees $ 2,863,500
Total fees $ 8,813,500
Net amount raised $ 79,050,000
Fee as a percentage of funds raised 11.15%

Chapter 16
Stephenson Real Estate Recapitalization
Input area:
Shares outstanding 8,000,000

Share price $ 37.80
Purchase price $ 85,000,000
Increase in pretax earnings $ 14,125,000
Current cost of capital 10.20%
YTM on new debt 6.00%
Equity weight in new capital structure 70%
Tax rate 23%
Output area:
2. Assets $ 302,400,000 Equity $ 302,400,000

Total assets $ 302,400,000 Total Debt & Equity $ 302,400,000
3. a) Aftertax earnings increase $ 10,876,250

NPV $ 21,629,902
b) Assets $ 302,400,000
NPV of project 21,629,902 Equity $ 324,029,902
New share price $ 40.50

New shares issued 2,098,572
Price
c) Cash $ 85,000,000
Old assets 302,400,000
NPV of project 21,629,902 Equity $ 409,029,902
Total
New shares outstanding 10,098,572

New share price $ 40.50
d) PV of the project $ 106,629,902
Old assets $ 302,400,000

PV of project 106,629,902 Equity $ 409,029,902
4. a) Market value of company $ 428,579,902
b) Value unlevered $ 409,029,902 Debt $ 85,000,000

Tax shield 19,550,000 Equity 343,579,902
New stock price $ 42.95

A B C D F G H
1 Chapter 18
2 Piepkorn Manufacturing Working Capital Management
3
4 Input Area:
5
6
7 Beginning cash balance $ 305,000
8 Outlay in fourth Q $ 525,000
9 Target cash balance $ 125,000
10 Q1 Q2 Q3 Q4
11 Gross sales $ 1,310,000 $ 1,390,000 $ 1,440,000 $ 1,530,000
12
13 Sales (1st quarter of next year) $ 1,405,000
14 Collection period 53
15 A/R $ 645,000
16 Percent uncollectible 20%
17 % of purchases for next Q sales 50%
18 Suppliers paid 42
19 % of sales for expenses 30%
20 Interest $ 135,000
21 Borrowing rate 1.5%
22 Invested securities 1.0%
23 Beginning short-term borrowing $ -
24 Change the following three lines for credit terms
25 Credit terms Piepkorn offers 1% 10 net 40
26 Percentage of customers taking credit 40%
27 Credit terms offered to Piepkorn 1.5% 15 net 40
28
29
30 Output Area:
31
32
33 Sales after discount $ 1,304,760.00 $ 1,384,440.00 $ 1,434,240.00 $ 1,523,880.00
34 Total credit purchases $ 695,000.00 $ 720,000.00 $ 765,000.00 $ 702,500.00
35 Credit purchases after discount $ 684,575.00 $ 709,200.00 $ 753,525.00 $ 691,962.50
36
37 Q1 Q2 Q3 Q4
38 A/R at beginning of Q collected $ 516,000.00 $ 768,358.67 $ 815,281.33 $ 844,608.00
39 Sales collection in current Q 536,401.33 569,158.67 589,632.00 626,484.00
40 Purchases last Q paid this Q (305,666.67) (319,468.33) (330,960.00) (351,645.00)
41 Purchase for next Q paid this Q (365,106.67) (378,240.00) (401,880.00) (369,046.67)
42 Expenses (393,000.00) (417,000.00) (432,000.00) (459,000.00)
43 Interest and dividends (135,000.00) (135,000.00) (135,000.00) (135,000.00)
44 Outlay (525,000.00)
45 Net cash inflow $ (146,372.00) $ 87,809.00 $ 105,073.33 $ (368,599.67)
46
A B C D F G H
47 Cash Balance
48 Q1 Q2 Q3 Q4
49 Beginning cash balance $ 305,000.00 $ 158,628.00 $ 246,437.00 $ 351,510.33
50 Net cash inflow (146,372.00) 87,809.00 105,073.33 (368,599.67)
51 Ending cash balance $ 158,628.00 $ 246,437.00 $ 351,510.33 $ (17,089.33)
52 Minimum cash balance 125,000.00 125,000.00 125,000.00 125,000.00
53 Cumulative surplus (deficit) $ 33,628.00 $ 121,437.00 $ 226,510.33 $ (142,089.33)
54
55 Short-term Financial Plan
56 Target cash balance $ 125,000.00 $ 125,000.00 $ 125,000.00 $ 125,000.00
57 Net cash inflow (146,372.00) 87,809.00 105,073.33 (368,599.67)
58 New short-term investments - (88,163.28) (106,309.25) -
59 Income on short-term investments 1,800.00 354.28 1,235.91 2,299.01
60 Short-term investments sold 144,572.00 - - 229,900.53
61 New short-term borrowing - - - 136,400.14
62 Interest on short-term borrowing - - - -
63 Short-term borrowing repaid - - - -
64 Ending cash balance $ 125,000.00 $ 125,000.00 $ 125,000.00 $ 125,000.00
65 Minimum cash balance (125,000.00) (125,000.00) (125,000.00) (125,000.00)
66 Cumulative surplus (deficit) $ - $ - $ - $ -
67
68 Beginning short-term investments $ 180,000.00 $ 35,428.00 $ 123,591.28 $ 229,900.53
69 Ending short-term investments 35,428.00 123,591.28 229,900.53 -
70 Beginning short-term debt - - - -
71 Ending short-term debt $ - $ - $ - $ 136,400.14
72
73 Q1: Excess funds at start of quarter of $180,000.00 earns $1,800.00 in income.
74 Q2: Excess funds at start of quarter of $35,428.00 earns $354.28 in income.
77
78 Net cash cost
79 Q1 $ 1,800.00
80 Q2 354.28
81 Q3 1,235.91
82 Q4 2,299.01
83 Cash generated by short-term financing $ 5,689.20
84
85 Rate on credit offered by Piepkorn 13.01%
86
87 Rate on credit offered to Piepkorn 24.69%
88
I
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
44
45
46
I
47
48
49
50
51
52
53
54
55
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57
58
59
60
61
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Chapter 19
Cash Management at Webb Corp.
Input Area:
Number of lockboxes 4
Daily payments $ 207,000
Investment account rate 0.013%
Wire transfer cost 0.20%
Sweep time (days) 14
Money market yield 0.013%
ACH transfer cost $ 175
Output:
1. FVA $ 11,578,596.73
2. FVA $ 11,590,485.29
The company should go ahead with the plan.
3. ACH transfer cost $ 387.14

Chapter 20
Credit Policy at Howlett Industries
Input Area:
Sales Default rate

Current policy $ 134,000,000 1.60%
Option 1 $ 158,000,000 2.50%
Option 2 $ 155,000,000 1.80%
Option 3 $ 170,000,000 2.20%
Variable costs 45%

Interest rate 6.00%
Output Area:
Daily interest rate 0.01597%
Current policy:
Daily sales $ 367,123.29

Variable costs (daily) $ 165,205.48
Defaults on sales (daily) $ 5,873.97
Administrative costs (daily) $ 8,076.71
Interest rate 0.5924%
NPV $ 31,563,539.77
Option 1:

NPV $ 33,118,667.97
Option 2:

NPV $ 26,727,604.87
Option 3:

NPV $ 29,943,730.97
Administrative costs Receivables period
2.20% 37
3.20% 40
2.40% 50
3.00% 48
Chapter 21
S&S Air Goes International
Input Area:
Sales per month € 5,700,000

Commission 5%
Current exhange rate ($/€) $ 1.09
Production costs 80%
3) Exhange rate ($/€) $ 1.03
Output Area:
Sales less commission € 5,415,000

Dollar value of sales $ 5,902,350
Total sales $ 6,213,000

Production costs $ 4,970,400
Profit at current exchange rate $ 931,950
3) At revised exchange rate:

Dollar value of sales $ 5,577,450
Production costs $ 4,970,400
Profit at new exchange rate $ 607,050
Breakeven exchange rate ($/€) $ 0.9179

Chapter 23
Chatman Mortgage, Inc.
Input area:
Mortgage value $ 400,000

Years 25
Interest rate 6%
4) Interest rate 7%
5) Interest rate 5%
Output area:
1) Mortgage payment $ 2,577.21
4) Mortgage value $ 364,640.84
5) Mortgage value $ 440,856.91

Chapter 24
S&S Air's Convertible Bond
Input area:
Industry PE 14.50
Company EPS $ 1.30
Conversion price (stock) $ 25.00
Maturity (years) 20
Convertible bond coupon 4%
Conversion value of bond $ 800
Plain vanilla coupon 7%
Output area:
Stock price $ 18.85
Intrinsic bond value $ 679.67
Floor value $800.00
Conversion ratio 32.00
Conversion premium 32.63%

Chapter 25
Exotic Cuisine Employee Stock Options
Input Area:
Strike price $55.00

Current stock price $26.32
Standard deviation 60%
Expiration (years) 3
Expiration (years) 10
Risk-free rate 2.40%
Risk-free rate 3.10%
Output Area:
1) Exercise in 3 years
d1 (0.1203)
d2 (1.1595)
N(d1) 0.4521
N(d2) 0.1231
Call $ 5.60
Exercise in 10 years
d1 0.7236
d2 (1.1737)
N(d1) 0.7654
N(d2) 0.1203
Call $ 15.29
Chapter 26
The Birdie Golf-Hybrid Golf Merger
Input Area:
Cash offer $ 185,000,000
2019 2020
Sales $ 330,000,000 $ 375,000,000
Production costs 231,000,000 262,500,000
Other expenses 33,000,000 38,000,000
Depreciation 27,000,000 31,000,000
EBIT $ 39,000,000 $ 43,500,000
Interest 7,500,000 9,000,000
Taxable income $ 31,500,000 $ 34,500,000
Taxes (21%) 6,615,000 7,245,000
Net income $ 24,885,000 $ 27,255,000
Additions to retained earnings $ - $ 16,000,000
Dividends from Hybrid today $ 55,000,000

Stock price of acquirer $ 87.00
Shares outstanding in acquirer 18,000,000
Shares outstanding in target 8,000,000
Borrowing rate 8%
Hybrid WACC 12.40%
Hybrid cost of equity 16.90%
Terminal value of Hybrid in five years $ 235,000,000
Tax rate 21%
Output Area:
Year 0 Year 1
Acquisition of Hybrid $ (185,000,000)
Dividends from Hybrid $ 55,000,000 $ 24,885,000
Terminal value of company
Total $ (130,000,000) $ 24,885,000
Present values
Acquisition of Hybrid $ (185,000,000)
Dividends from Hybrid $ 55,000,000 $ 21,287,425
Terminal value of company
Total $ (130,000,000) $ 21,287,425
1) NPV $ 52,716,162.93
2) Highest price to offer $ 237,716,162.93
Price per share offered $ 23.13

Highest share price to offer $ 29.71
3) New share price $ 89.93
Exchange ratio 0.2571
4) Highest exchange ratio 0.3415

2021 2022 2023
$ 415,000,000 $ 445,000,000 $ 495,000,000
290,500,000 311,500,000 346,500,000
41,000,000 45,000,000 49,000,000
33,000,000 36,000,000 36,000,000
$ 50,500,000 $ 52,500,000 $ 63,500,000
10,000,000 10,500,000 11,000,000
$ 40,500,000 $ 42,000,000 $ 52,500,000
8,505,000 8,820,000 11,025,000
$ 31,995,000 $ 33,180,000 $ 41,475,000
$ 19,000,000 $ 21,000,000 $ 25,000,000
Year 2 Year 3 Year 4 Year 5
$ 11,255,000 $ 12,995,000 $ 12,180,000 $ 16,475,000

235,000,000
$ 11,255,000 $ 12,995,000 $ 12,180,000 $ 251,475,000
$ 8,236,003 $ 8,134,535 $ 6,522,127 $ 7,546,627
130,989,446
$ 8,236,003 $ 8,134,535 $ 6,522,127 $ 138,536,073
Chapter 27
The Decision to Lease or Buy at Warf Computers
Input area:
Purchase price $ 6,100,000

Year 1 depreciation 0.3333
Salvage value $ 780,000
Lease payment $ 1,480,000
Security deposit $ 400,000
Cost of debt 11%
Tax rate 21%
Alternative lease:
Lease payments $ 1,775,000
Year 2 salvage value $ 3,200,000
Output area:
1) Aftertax cost of debt 8.69%

Saved purchase $ 6,100,000
Lost salvage value
Lost depreciation tax shield $ (426,957) $ (569,405)
Security deposit (400,000)
Lease payment (1,480,000) (1,480,000) (1,480,000)
Tax on lease payment 310,800 310,800 310,800
Cash flow from leasing $ 4,530,800 $ (1,596,157) $ (1,738,605)
NAL $ 309,282.22
2) Book value in Year 2 $ 1,355,420

Saved purchase $ 6,100,000
Lost salvage value $ (2,812,638)
Lost depreciation tax shield $ (426,957) (569,405)
Lease payment (1,775,000) (1,775,000)
Tax on lease payment 372,750 372,750
Cash flow from leasing $ 4,697,750 $ (1,829,207) $ (3,382,043)
NAL $ 151,933.10
PV of lease payments $3,374,099.10

Year 3 Year 4
$ (616,200)
$ (189,716) (94,922)
400,000
(1,480,000)
310,800
$ (1,358,916) $ (311,122)

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FCF 12th Edition Case Solutions

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NOTE: Some functions used in these spreadsheets may require that

Tax rate 21%

2018 Income Statement

Balance sheet as of Dec. 31, 2017

Balance sheet as of Dec. 31, 2018

Change in Net Working Capital

Cash Flow from Assets

Cash Flow to Creditors

Cash Flow to Stockholders

Tax rate 25%

Assets Liabilities & Equity

Total Assets $ 22,985,163 Total L&E $ 22,985,163

Current ratio 0.74

Assets Liabilities & Equity

Total Assets $ 22,985,163 Total L&E $ 22,985,163

Growth rate 12%

Return on assets 10.08%

Retention ratio 0.70

Total Assets $ 25,743,383 Total L&E $ 24,698,702

EFN if minimum FA purchase is $ 5,000,000

Depreciation as a percentage of sales 10.18%

Assets Liabilities & Equity

Total Assets $ 28,297,549 Total L&E $ 24,486,198

Current salary $ 53,000

Discount rate 5.50%

Present value of salary $ 938,149.63

PV of tuition & expenses $ (114,924.17)

Aftertax bonus $ 6,900.00

Aftertax salary $ 60,030.00

PV of salary in two years $ 1,612,050.35

Value of salary today $ 1,448,350.53

PV of attending Wilton $ 1,339,625.68

Mount Perry MBA

Aftertax salary $ 55,380.00

PV of salary in one year $ 1,405,123.99

PV of salary today $ 1,331,871.08

PV of attending Mt. Perry $ 1,259,054.96

5. Current job PV minus

Aftertax beginning salary $ 38,983.82

Pretax beginning salary $ 56,498.28

Shares owned by each sibling 50,000

EPS DPS Stock price ROE R

Expert EPS w/o write-off $ 1.10

1) Total earnings $ 315,000

Value per share $ 54.35

2) Industry EPS $ 1.45

Stock value in Year 5 $ 53.38

Stock price today $ 35.30

Ragan PE (original assumption) 17.25

Ragan PE (revised assumption) 11.21

Stock price implied by

Year Cash flow

Required return 12%

Payback period 4.67

IRR 13.02% =IRR(D8:D17)

MIRR 12.45% =MIRR(D8:D17,D19,D19)

Profitability index 1.04 =NPV(D19,D9:D17)/-D8

NPV $ 24,132,970.75 =NPV(D19,D9:D17)+D8

Year 1 Year 2 Year 3

Old phone price reduction $ 170

Sales Year 1 Year 2 Year 3