Case Solutions

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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Chapter 2
Cash Flows at Warf Computer, Inc.
Input area:
Balance Sheet (in $ thousands)

2009
Current liabilities
290 $
251
Accounts payable
459
428
Notes payable
411
425
Accrued expenses
59
50
Total current liabilities
1,219 $
1,154
Long-term liabilities
Deferred taxes
2,631 $
2,038
Long-term debt
859
700
Total long-term liabilities
1,772 $
1,338
508
454
Stockholders equity
2,280 $
1,792
Preferred stock
Common stock
Capital surplus
Accumulated retained earnings
Less treasury stock
Total equity
2010
Current assets
Cash and equivalents
Accounts receivable
Inventories
Other
Total current assets
Fixed assets
Property, plant, and equipment
Less accumulated depreciation
Net property, plant, and equipment
Intangible assets and others
Total fixed assets
$
$
$
Total assets
3,499
Acquisition of fixed assets

Sale of fixed assets
New debt issued
Debt retired
New stock issued
Stock repurchased
$
$
$
$
$
$
786
139
118
98
11
40
Income Statement (in $ thousands)

Sales
$
Cost of goods sold
Selling, general, and administrative
Depreciation
Operating income
$
Other income
EBIT
$
Interest expense
Pretax income
$
Taxes
Current
Deferred
Net income
$
Retained earnings
Dividends
742
$
$
530
212
1,332
159
386
1,105
Net capital spending

Capital spending
Alternatively,
Ending fixed assets
-Beginning fixed assets
Depreciation
Capital spending
$
$
$
2,946
$
$
386
109
4,844
2,858
543
159
1,284
48
1,332
95
1,237
495
Output area:
Operating cash flow

Earnings before interest and taxes
Depreciation
-Current taxes
Operating cash flow
786
(139)
647
2,280
1,792
159
647
Total liabilities and

shareholders equity
2010
$
2009
262
71
158
491
212
756
968
13
81
509
1,558
121
2,040
13
80
499
1,028
81
1,539
3,499
2,946
$
$
245
66
257
568
103
736
839
Net working capital cash flow

Ending NWC
Beginning NWC
NWC cash flow
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
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
1,105
647
142
316
95
98
193
(118)
75
736
(756)
95
75
212
40
252
(11)
241
1,539
(2,040)
212
530
241
742
159
109
(31)
14
17
(99)
(9)
902
(786)
139
(647)
(98)
118
5
(212)
(40)
11
(216)
39
Chapter 3
Ratios and Financial Planning at East Coast Yachts
Input area:
Tax rate
40%
Sales
COGS
Other expenses
Depreciation
EBIT
Interest
Taxable income
Taxes (40%)
Net income
167,310,000
117,910,000
19,994,000
5,460,000
23,946,000
3,009,000
20,937,000
8,374,800
12,562,200
Dividends
Add to RE
$
$
7,537,320
5,024,880
$
$
Assets
Current Assets
Cash
Accounts rec.
Inventory
Total CA
3,042,000
5,473,000
6,136,000
14,651,000
Liabilities & Equity

Current liabilities
Accounts payable
$
6,461,000
Notes payable
13,078,000
Total CL
$
19,539,000
Long-term debt
Fixed assets
Net PP&E
Total assets
Growth rate
Minimum FA purchase
93,964,000
108,615,000
20%
30,000,000
Output area:
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
0.75
0.44
1.54
19.22
30.57
0.49
0.96
1.96
7.96
7.51%
11.57%
22.70%
3) Retention ratio
Sustainable growth rate
Sales
COGS
Other expenses
0.40
9.99%
$
184,018,615
129,685,224
21,990,725
Shareholder equity
Common stock
Retained earnings
Total equity
Total L&E
33,735,000
$
$
5,200,000
50,141,000
55,341,000
108,615,000
Depreciation
EBIT
Interest
Taxable income
Taxes (40%)
Net income
$
$
$
Dividends
Add to RE
5,460,000
26,882,666
3,009,000
23,873,666
9,549,466
14,324,199
8,594,520
5,729,680
Assets
Current Assets
Cash
Accounts rec.
Inventory
Total CA
3,345,793
6,019,568
6,748,779
16,114,140

Current liabilities
Accounts payable
$
7,106,236
Notes payable
14,384,050
Total CL
$
21,490,286
Long-term debt
Fixed assets
Net PP&E
103,347,828
Total Assets
119,461,968
EFN
3,166,002
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
$
$
$
$
5,200,000
55,870,680
61,070,680
116,295,966
9,654,552
6,436,368
3,650,400
6,567,600
7,363,200
17,581,200

Current liabilities
Accounts payable
$
7,753,200
Notes payable
15,693,600
Total CL
$
23,446,800
Long-term debt
Fixed assets
Net PP&E
200,772,000
141,492,000
23,992,800
5,460,000
29,827,200
3,009,000
26,818,200
10,727,280
16,090,920
Assets
Current Assets
Cash
Accounts rec.
Inventory
Total CA
Total L&E
33,735,000
0.75
0.44
1.54
19.22
30.57
0.49
0.90
1.96
8.93
7.78%
11.99%
23.46%
$
Dividends
Add to RE
Shareholder equity
Common stock
Retained earnings
Total equity
112,756,800
Shareholder equity
33,735,000
Common stock
Retained earnings
Total equity
Total Assets
130,338,000
EFN
11,378,832
5) EFN if minimum FA purchase is
Dividends
Add to RE
$
$
$
$
$
118,959,168
5.81%
123,964,000
7,203,221
9,026,993
6,017,995
3,650,400
6,567,600
7,363,200
17,581,200

Current liabilities
Accounts payable
$
7,753,200
Notes payable
15,693,600
Total CL
$
23,446,800
Long-term debt
Fixed assets
Net PP&E
200,772,000
141,492,000
23,992,800
7,203,221
28,083,979
3,009,000
25,074,979
10,029,992
15,044,988
Assets
Current Assets
Cash
Accounts rec.
Inventory
Total CA
5,200,000
56,577,368
61,777,368
$ 30,000,000
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
123,964,000
Total Assets
141,545,200
EFN
23,004,405
Shareholder equity
Common stock
Retained earnings
Total equity
Total L&E
33,735,000
$
$
5,200,000
56,158,995
61,358,995
118,540,795
Chapter 4
The MBA Decision
Input area:
Current salary
Years until retirement
Salary increase
Tax rate
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
60,000
40
3%
26%
$
$
$
$
65,000
3,000
110,000
20,000
4%
31%
$
$
$
$
80,000
4,500
18,000
92,000
3.5%
29%
$
$
3,000
2,000
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)
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
1,146,671.37
Value in 2 years
1,300,583.34
Aftertax beginning salary
54,691.54
Pretax beginning salary
79,263.10
5. Current job PV minus

bonus after Wilton costs
Chapter 5
Bullock Gold Mining
Input area:
Year
0
1
2
3
4
5
6
7
8
9
$
$
$
$
$
$
$
$
$
$
Required return
Cash flow
(400,000,000)
85,000,000
90,000,000
140,000,000
180,000,000
195,000,000
130,000,000
95,000,000
60,000,000
(95,000,000)
12%
Output area:
Payback period
3.47
IRR
IRR
23.73% =IRR(D8:D17)
-48.93% =IRR(D8:D17,-0.99)
MIRR
16.21% =MIRR(D8:D17,D19,D19)
Profitability index
NPV
1.43 =NPV(D19,D9:D17)/-D8
$
171,141,294.31 =NPV(D19,D9:D17)+D8
Chapter 6
Bethesda Mining
Input area:
Equipment
Land cost
Aftertax land value
Contract sales/tons
Year 1 production
Year 2 production
Year 3 production
Year 4 production
Contract $/ton
Spot market $/ton
Variable cost/ton
Year 1 depreciation
Year 2 depreciation
Year 3 depreciation
Year 4 depreciation
Fixed costs
Reclamation costs
Charitable expense
NWC percent
Tax rate
Required return
$
$
$
85,000,000
6,000,000
7,000,000
500,000
620,000
680,000
730,000
590,000
$95
$90
$31
14.30%
24.50%
17.50%
12.50%
$4,300,000
$2,800,000
$7,500,000
5%
38%
12%
Output area:
Time 0 cash flow

Equipment
Land
NWC
Total
Sales
Contract
Spot
Total
Sales
$ (85,000,000)
(7,000,000)
(2,915,000)
($94,915,000)
Year 1
47,500,000
10,800,000
58,300,000
58,300,000
Year 2
47,500,000
16,200,000
63,700,000
63,700,000
Year 3
47,500,000
20,700,000
68,200,000
68,200,000
VC
FC
Dep
EBT
Tax
NI
+ Dep
OCF
$
$
$
19,220,000
4,300,000
12,155,000
22,625,000
8,597,500
14,027,500
12,155,000
26,182,500
$
$
$
22,630,000
4,300,000
14,875,000
26,395,000
10,030,100
16,364,900
14,875,000
31,239,900
3,185,000 $
3,410,000
(225,000) $
3,410,000
2,780,000
630,000
$
$
Beginning NWC
Ending NWC
NWC cash flow
Total cash flow
25,912,500
31,446,900
31,869,900
Book value
72,845,000
52,020,000
37,145,000
51,000,000
26,520,000
(9,302,400)
41,697,600
Salvage
2,915,000 $
3,185,000
(270,000) $
21,080,000
4,300,000
20,825,000
17,495,000
6,648,100
10,846,900
20,825,000
31,671,900
MV
BV
Taxes
Salvage CF
$
Time
0
1
2
3
4
5
6
Profitability index
Average accounting return
IRR
IRR
MIRR
NPV
Cash flow
(94,915,000)
25,912,500
31,446,900
31,869,900
68,981,300
(1,736,000)
(4,650,000)
1.1736
20.79%
19.01%
-74.64%
14.93%
$ 16,472,777.67
Year 4
$ 47,500,000
8,100,000
$ 55,600,000
$ 55,600,000
Year 5
Year 6
18,290,000
4,300,000
10,625,000
$ 22,385,000
8,506,300
$ 13,878,700
10,625,000
$ 24,503,700
$
2,780,000
2,780,000
$ 2,800,000
$ 7,500,000
$ (2,800,000) $ (7,500,000)
(1,064,000)
(2,850,000)
$ (1,736,000) $ (4,650,000)
$ (1,736,000) $ (4,650,000)
$ 27,283,700
$ 26,520,000
Chapter 6
Goodweek Tires, Inc.
Input area:
Research and development

Test marketing cost
Initial equipment cost
Equipment salvage value
Year 1 depreciation
Year 2 depreciation
Year 3 depreciation
Year 4 depreciation
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
$
$
$
$
10,000,000
5,000,000
140,000,000
54,000,000
14.30%
24.50%
17.50%
12.50%
$
$
38
22
5,600,000
2.50%
11.00%
$
$
59
22
14,000,000
2.00%
8.00%
1%
1%
26,000,000
40.00%
3.25%
15.90%
9,000,000
15%
Output area:
Nominal price increase

Nominal VC increase
4.28%
4.28%
Year 0
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
5,600,000
22,400,000
2,464,000
38.00
5,740,000
22,960,000
2,525,600
39.24
5,883,500
23,534,000
2,588,740
40.51
6,030,588
24,122,350
2,653,459
41.83
14,000,000
1,120,000
59.00
14,280,000
1,142,400
60.92
14,565,600
1,165,248
62.90
14,856,912
1,188,553
64.94
$
$
$
$
93,632,000
66,080,000
159,712,000
54,208,000
24,640,000
78,848,000
99,091,916
69,592,152
168,684,068
57,942,694
26,209,112
84,151,806
104,870,213
73,290,975
178,161,188
59,391,261
25,635,456
85,026,717
110,985,458
77,186,390
188,171,848
60,876,043
26,148,165
87,024,208
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 $
9,000,000
(9,000,000) $
140,000,000
$
$
$
168,684,068
84,151,806
26,845,000
34,300,000
23,387,262
9,354,905
14,032,357
48,332,357
$
$
$
178,161,188
85,026,717
27,717,463
24,500,000
40,917,008
16,366,803
24,550,205
49,050,205
$
$
188,171,848
87,024,208
28,618,280
17,500,000
55,029,360
22,011,744
33,017,616
50,517,616
9,000,000 $
23,956,800
(14,956,800) $
23,956,800 $
25,302,610
(1,345,810) $
25,302,610 $
26,724,178
(1,421,568) $
26,724,178
26,724,178
119,980,000
85,680,000
61,180,000
43,680,000
Year 1
40,926,400
Year 2
48,332,357
Year 3
49,050,205
54,000,000
(4,128,000)
49,872,000
Year 0
Operating cash flow

Capital spending
Net working capital
Total cash flows
159,712,000
78,848,000
26,000,000
20,020,000
34,844,000
13,937,600
20,906,400
40,926,400
(140,000,000)
(9,000,000)
(149,000,000) $
Discounted cash flow
(149,000,000) $
NPV
IRR
Profitability index
9,424,967.81
18.35%
1.0633
(14,956,800)
25,969,600 $
22,406,903
(1,345,810)
46,986,547 $
(1,421,568)
47,628,637 $
34,978,941
30,592,703
Year 4
50,517,616
49,872,000
26,724,178
127,113,794
70,446,422
Chapter 7
Bunyan Lumber, LLC
Input area:
Total acreage
Years since original planting
1P pond value
2P pond value
3P pond value
Cash flow/acre from thinning
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
20
660
630
620
1,000
Harvest (MBF)
per acre
14.1
16.4
17.3
18.1
$
$
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%
10.00%
3.70%
35%
$
250,000
3.20%
Output area:
Real required return

Cash flow from thinning
6.08%
$
Harvest in
5,000,000
20
years
Revenue
Tractor cost
Road
Sale preparation & admin
Excavator piling
Broadcast burning
Site preparation
Planting costs
EBIT
Taxes
Net income (OCF)
42,194,250
9,870,000
3,525,000
1,269,000
750,000
1,500,000
725,000
1,125,000
23,430,250
8,200,588
15,229,663
PV of first harvest
4,681,788
Next thinning will occur in

The effective real interest rate for this period is
The real rate in the conservation fund is
The effective real interest rate for the
conservation fund for this period is
40
years, and will reoccur at this same interval.

958.17%
6.59%
1183.87%
3P
48%
40%
35%
31%
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
(162,500.00)
(176,226.22)
521,825.80
488,615.51
(49,182.52)
5,643,046.36
25
Revenue
Tractor cost
Road
Excavator piling
Broadcast burning
Site preparation
Planting costs
EBIT
Taxes
Net income (OCF)
49,232,800
11,480,000
4,100,000
1,476,000
750,000
1,500,000
725,000
1,125,000
28,076,800
9,826,880
18,249,920
PV of first harvest
4,177,464
years

45 years, and will reoccur at this same interval.
1321.11%
1666.38%
(172,251.67)
$
$
$
Total NPV
Harvest in
378,470.46
316,209.37
(34,941.27)
4,837,202.85
30
Revenue
Tractor cost
Road
Excavator piling
Broadcast burning
Site preparation
Planting costs
EBIT
Taxes
Net income (OCF)
52,024,993
12,110,000
4,325,000
1,557,000
750,000
1,500,000
725,000
1,125,000
29,932,993
10,476,547
19,456,445
PV of first harvest
3,316,238
years

1808.52%
2330.24%
(169,473.53)
$
$
$
Total NPV
276,469.34
183,367.60
(24,986.89)
3,751,087.59
Harvest in
35
Revenue
Tractor cost
Road
Excavator piling
Broadcast burning
Site preparation
Planting costs
EBIT
Taxes
Net income (OCF)
54,516,748
12,670,000
4,525,000
1,629,000
750,000
1,500,000
725,000
1,125,000
31,592,748
11,057,462
20,535,286
PV of first harvest
2,606,233
years

2463.10%
3243.60%
(167,509.87)
$
$
$
Total NPV
202,995.97
105,810.96
(17,950.88)
2,897,089.08
Chapter 8
Financing East Coast Yachts Expansion Plans with a Bond Issue
Input area:
Years to maturity
Required return
Amount needed
Face value
$
$
20
7.50%
40,000,000
1,000
Coupon rate
Tax rate
7.50%
35%
Year bond is called

Spread above Treasury
Treasury rate at call
Treasury rate at call
7
0.40%
5.60%
9.10%
Output area:
2) Price of coupon bond

# of coupon bonds needed
1,000
40,000
Price of zero coupon bond

# of zeroes needed
229.34
174,413
3) Repayment of coupon bonds
40,000,000
Repayment of zeroes
174,413,000
4) Year 1 interest payments:

Pretax coupon payment
Aftertax coupon payment
$
$
3,000,000
1,950,000
Value of zero in one year

Zero coupon growth
Zero coupon bond
$
246.86
$
17.52
$ (1,069,544.61)
Cash outflow
Cash inflow
During the life of a bond, the zero generates cash inflows to the firm
in the form of the interest tax shield of debt.
5) Make whole price
1,134.08
Make whole price
852.47
a Bond Issue
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.

Bon Voyage Marine, Inc.
Nautilus Marine Engines
Industry average
Nautilus EPS w/o write-off
150,000
5.08
320,000
25%
20%
EPS
1.09 $
1.16
(0.32)
0.64 $
1.97
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
$
$
1,524,000.00
41.99%
58.01%
14.50%
732,808.40
13,326,968.97
44.42
1.41
29.15%
70.85%
9.21%
$
$
$
$
$
$
Total dividends
732,808.40
839,075.23
960,752.15
1,100,073.82
1,259,598.97
1,375,619.37
Stock value in Year 5

Total stock value today
$
$
17,660,826.76
11,056,024.78
Value per share
36.85
3) Industry PE
12.02
Ragan PE (original assumption)
8.74
Ragan PE (revised assumption)
7.25
Stock price implied by

industry PE
61.07
DPS
0.16
0.53
0.54
0.41
Stock price
15.19
12.49
23.05
$
16.91
$
ROE
11.00%
14.00%
14.00%
13.00%
R
14.00%
19.00%
18.00%
17.00%
4) Total earnings
Cash cow value
1,524,000.00
8,964,705.88
Percentage not attributable to

growth opportunities
81.08%
Percentage attributable to
growth opportunities
18.92%
5) ROE
15.88%
Chapter 10
A Job at East Coast Yachts
Input area:
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 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 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)

Sharpe ratio
22.54%
0.317133

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%
Microsoft Excel 12.0 Answer Report

Worksheet: [Jaffe 9th edition Case Solutions.xlsx]Chapter 11
Report Created: 1/5/2009 12:23:05 PM
Target Cell (Max)

Cell
Name
$D$46 Sharpe ratio Portfolio E(R)
Original Value
0.266304
Adjustable Cells
Cell
Name
$D$45 Weight of large cap stock fund Portfolio E(R)
Original Value Final Value

0.00%
22.54%
Constraints
NONE
Final Value
0.317133
Chapter 12
The Fama-French Multi-Factor Model and Mutual Fund 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
2.24
1.49
-1.16
-2.5
1.35
2.08
-3.87
0.16
1.95
1.67
4.67
3.36
-2.82
2.11
-1.9
-2.73
3.55
0.92
4.09
-0.89
0.77
-2.35
3.73
0.03
3.66
-0.5
1.54
0.94
-3.53
-0.44
-0.59
2.09
1.54
3.3
1.95
2.6
-1.2
1.85
-2.53
-0.12
2.25
-3.82
-1.56
2.82
0.49
4.11
0.18
-1.67
-0.76
-1.37
-3.95
3.01
2.58
2.77
-0.88
-0.65
-1.05
0.99
-0.47
5.33
-0.31
3.51
-1.22
-3
-0.47
-3.9
0.8
-1.22
1.68
0.7
1.66
0.37
-0.01
-1.69
-0.31
1.72
4.42
1.13
0.4
-0.95
1.96
-0.35
2.52
2.85
1.71
-0.49
-1.16
2.84
-0.47
1.44
1.23
-0.74
-1.75
0.51
1.18
-0.76
0.04
3.07
2.75
1.51
3.25
-1.66
-0.49
0.49
0.39
0.07
0.06
0.09
0.08
0.06
0.08
0.1
0.11
0.11
0.11
0.15
0.16
0.16
0.16
0.21
0.21
0.24
0.23
0.24
0.3
0.29
0.27
0.31
0.32
0.35
0.34
0.37
0.36
0.43
0.4
0.4
0.42
0.41
0.41
0.42
FMAGX
Adj Close
$ 62.03
$ 62.83
$ 63.72
$ 62.92
$ 61.84
$ 62.49
$ 63.40
$ 60.92
$ 61.07
$ 61.64
$ 62.59
$ 64.67
$ 66.68
$ 65.43
$ 66.20
$ 64.89
$ 63.55
$ 65.84
$ 65.87
$ 68.52
$ 67.73
$ 68.21
$ 67.33
$ 69.59
$ 70.96
$ 74.35
$ 73.24
$ 75.20
$ 76.64
$ 72.90
$ 72.36
$ 70.10
$ 71.79
$ 72.59
$ 74.71
$ 76.65
FLPSX
Adj Close
$ 22.50
$ 23.11
$ 23.79
$ 23.82
$ 23.24
$ 23.30
$ 24.11
$ 23.27
$ 23.20
$ 24.12
$ 24.45
$ 26.40
$ 27.45
$ 26.91
$ 27.76
$ 27.19
$ 25.90
$ 27.17
$ 28.03
$ 29.11
$ 29.08
$ 29.30
$ 28.06
$ 29.31
$ 29.84
$ 31.80
$ 31.60
$ 32.41
$ 33.05
$ 31.73
$ 31.35
$ 30.98
$ 31.55
$ 32.01
$ 33.13
$ 34.51
200612
200701
200702
200703
200704
200705
200706
200707
200708
200709
200710
200711
200712
200801
200802
200803
200804
200805
200806
200807
200808
200809
200810
200811
200812
0.68
1.5
-1.78
0.86
3.55
3.48
-1.88
-3.58
0.74
3.77
2.26
-5.27
-0.7
-6.44
-2.33
-1.22
4.94
2.21
-8.03
-1.46
0.98
-9.96
-18.55
-8.54
2.06
-0.93
0.02
1.39
-0.2
-2.06
-0.05
0.69
-2.74
-0.09
-2.47
0.07
-2.72
0.06
-0.76
-0.67
0.87
-1.6
2.8
0.91
3.89
3.66
-0.2
-2.05
-3.46
4.09
2.56
0
0.32
0.31
-1.08
-0.23
-1.07
-3.01
-2.42
-2.1
-1.97
-0.88
-0.02
3.13
0.04
0.26
0.08
-0.3
-0.93
3.57
1.65
4.37
-3.14
-5.09
-1.21
0.4
0.44
0.38
0.43
0.44
0.41
0.4
0.4
0.42
0.32
0.32
0.34
0.27
0.21
0.13
0.17
0.17
0.17
0.17
0.15
0.12
0.15
0.08
0.02
0.09
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
76.24
78.43
77.14
77.78
81.52
84.84
84.48
82.94
83.90
89.11
93.86
90.30
90.61
82.50
81.18
79.40
84.58
87.17
79.87
76.73
76.67
62.89
49.30
43.72
45.86
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
35.14
35.57
35.47
36.06
37.23
38.69
38.34
36.63
36.37
37.33
38.44
36.04
36.21
34.40
34.06
33.44
35.14
36.37
33.20
32.74
33.07
29.17
23.33
21.29
23.12
Output area:
200401
200402
200403
200404
200405
200406
200407
200408
200409
200410
200411
200412
Mkt-RF
0.0224
0.0149
-0.0116
-0.0250
0.0135
0.0208
-0.0387
0.0016
0.0195
0.0167
0.0467
0.0336
SMB
0.0260
-0.0120
0.0185
-0.0253
-0.0012
0.0225
-0.0382
-0.0156
0.0282
0.0049
0.0411
0.0018
Risk premium for mutual funds

HML FMAGX FLPSX
BSCFX
0.0166
0.0122
0.0264
0.0368
0.0037
0.0136
0.0288
0.0054
-0.0001 -0.0135
0.0004
0.0264
-0.0169 -0.0180
-0.0251
0.0277
-0.0031
0.0099
0.0020
0.0007
0.0172
0.0138
0.0340
-0.0140
0.0442 -0.0401
-0.0358
-0.0628
0.0113
0.0014
-0.0041
-0.0174
0.0040
0.0082
0.0386
0.0265
-0.0095
0.0143
0.0126
0.0399
0.0196
0.0317
0.0783
0.0682
-0.0035
0.0295
0.0382
0.0600
200501
200502
200503
200504
200505
200506
200507
200508
200509
200510
200511
200512
200601
200602
200603
200604
200605
200606
200607
200608
200609
200610
200611
200612
200701
200702
200703
200704
200705
200706
200707
200708
200709
200710
200711
200712
200801
200802
200803
200804
200805
200806
200807
200808
-0.0282
0.0211
-0.0190
-0.0273
0.0355
0.0092
0.0409
-0.0089
0.0077
-0.0235
0.0373
0.0003
0.0366
-0.0050
0.0154
0.0094
-0.0353
-0.0044
-0.0059
0.0209
0.0154
0.0330
0.0195
0.0068
0.0150
-0.0178
0.0086
0.0355
0.0348
-0.0188
-0.0358
0.0074
0.0377
0.0226
-0.0527
-0.0070
-0.0644
-0.0233
-0.0122
0.0494
0.0221
-0.0803
-0.0146
0.0098
-0.0167
-0.0076
-0.0137
-0.0395
0.0301
0.0258
0.0277
-0.0088
-0.0065
-0.0105
0.0099
-0.0047
0.0533
-0.0031
0.0351
-0.0122
-0.0300
-0.0047
-0.0390
0.0080
-0.0122
0.0168
0.0070
-0.0093
0.0002
0.0139
-0.0020
-0.0206
-0.0005
0.0069
-0.0274
-0.0009
-0.0247
0.0007
-0.0272
0.0006
-0.0076
-0.0067
0.0087
-0.0160
0.0280
0.0091
0.0389
0.0366
0.0252
0.0285
0.0171
-0.0049
-0.0116
0.0284
-0.0047
0.0144
0.0123
-0.0074
-0.0175
0.0051
0.0118
-0.0076
0.0004
0.0307
0.0275
0.0151
0.0325
-0.0166
-0.0049
0.0049
0.0039
0.0256
0.0000
0.0032
0.0031
-0.0108
-0.0023
-0.0107
-0.0301
-0.0242
-0.0210
-0.0197
-0.0088
-0.0002
0.0313
0.0004
0.0026
0.0008
-0.0030
-0.0093
0.0357
0.0165
-0.0203
0.0102
-0.0219
-0.0228
0.0336
-0.0018
0.0378
-0.0145
0.0042
-0.0156
0.0305
0.0165
0.0443
-0.0183
0.0231
0.0155
-0.0531
-0.0114
-0.0352
0.0199
0.0070
0.0251
0.0218
-0.0093
0.0243
-0.0202
0.0040
0.0437
0.0366
-0.0082
-0.0222
0.0074
0.0589
0.0501
-0.0413
0.0007
-0.0916
-0.0173
-0.0236
0.0635
0.0289
-0.0854
-0.0408
-0.0020
-0.0213
0.0300
-0.0226
-0.0495
0.0466
0.0294
0.0361
-0.0040
0.0047
-0.0450
0.0414
0.0149
0.0622
-0.0097
0.0219
0.0161
-0.0442
-0.0160
-0.0158
0.0142
0.0105
0.0309
0.0375
0.0143
0.0078
-0.0066
0.0123
0.0280
0.0351
-0.0130
-0.0486
-0.0113
0.0232
0.0265
-0.0658
0.0020
-0.0521
-0.0112
-0.0199
0.0491
0.0333
-0.0889
-0.0154
0.0089
-0.0079
0.0133
-0.0060
-0.0468
0.0284
0.0477
0.0430
-0.0302
-0.0131
-0.0511
0.0638
0.0177
0.0637
-0.0054
0.0416
-0.0088
-0.0611
-0.0171
-0.0686
0.0181
0.0289
0.0536
0.0245
0.0055
0.0345
-0.0110
0.0025
0.0164
0.0344
-0.0031
-0.0461
0.0042
0.0448
0.0519
-0.0297
-0.0273
-0.0953
-0.0369
-0.0142
0.0488
0.0302
-0.0972
0.0030
0.0269
200809 -0.0996 -0.0020 0.0437

200810 -0.1855 -0.0205 -0.0314
200811 -0.0854 -0.0346 -0.0509
200812 0.0206 0.0409 -0.0121
-0.1812
-0.2169
-0.1134
0.0480
-0.1194
-0.2010
-0.0876
0.0851
-0.1042
-0.1949
-0.1070
0.0570
Fund Returns
BSCFX
Adj Close
$ 14.40
$ 14.94
$ 15.03
$ 15.44
$ 15.88
$ 15.90
$ 15.69
$ 14.72
$ 14.48
$ 14.88
$ 15.49
$ 16.57
$ 17.59
$ 17.48
$ 17.74
$ 17.67
$ 16.88
$ 17.40
$ 18.27
$ 19.10
$ 18.58
$ 18.39
$ 17.50
$ 18.67
$ 19.06
$ 20.34
$ 20.30
$ 21.22
$ 21.11
$ 19.91
$ 19.65
$ 18.38
$ 18.79
$ 19.41
$ 20.53
$ 21.12
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
21.32
22.15
21.99
22.14
22.60
23.47
23.49
22.50
22.69
23.78
25.09
24.43
23.83
21.61
20.84
20.58
21.62
22.31
20.18
20.27
20.84
18.70
15.07
13.46
14.24
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.96923
R Square
0.93941
Adjusted R Square 0.93617
Standard Error
0.01265
Observations
60
ANOVA
df
Regression
Residual
Total
Intercept
Mkt-RF
SMB
HML
SS
0.13900418
0.00896533
0.14796951
MS
0.04633473
0.0001601
Coefficients Standard Error

-0.00147944 0.00166478
1.23051197 0.04505004
-0.13006248 0.08242486
-0.35628371 0.08694435
t Stat
-0.88867336
27.3143341
-1.57795205
-4.09783623
3
56
59
F
Significance F
289.419805 4.7395E-34
P-value
0.37798007
4.7026E-34
0.12020937
0.00013585
Lower 95% Upper 95%

-0.00481439 0.00185551
1.14026588 1.32075805
-0.29517932 0.03505436
-0.53045418 -0.18211325
Lower 95.0%
-0.00481439
1.14026588
-0.29517932
-0.53045418
Upper 95.0%
0.00185551
1.32075805
0.03505436
-0.18211325
SUMMARY OUTPUT
Multiple R
0.97008
R Square
0.94106
Standard Error
0.01177
Observations
60
ANOVA
df
Regression
Residual
Total
Intercept
Mkt-RF
SMB
HML
3
56
59
SS
0.12381327
0.00775471
0.13156798
MS
0.04127109
0.00013848

t Stat
0.00156955
0.0015483 1.01372039
1.04743233 0.04189814 24.9994946
0.32268708 0.07665805 4.20943515
0.0823834 0.08086133
1.0188232
F
Significance F
298.035876 2.1912E-34
P-value
Lower 95% Upper 95% Lower 95.0%
0.31507618 -0.00153208 0.00467117 -0.00153208
4.6288E-32 0.96350027 1.13136439 0.96350027
9.3607E-05 0.16912256 0.47625161 0.16912256
0.31266842 -0.07960131 0.24436812 -0.07960131
Upper 95.0%
0.00467117
1.13136439
0.47625161
0.24436812
SUMMARY OUTPUT
Multiple R
0.93283
R Square
0.87017
Standard Error
0.01874
Observations
60
ANOVA
df
Regression
Residual
Total
Intercept
Mkt-RF
SMB
HML
3
56
59
SS
0.13176815
0.01966039
0.15142854
MS
0.04392272
0.00035108

t Stat
0.00212408
0.0024653 0.86159383
1.04525708 0.06671263 15.6680527
0.46569109 0.12205937
3.8152836
-0.26523463 0.12875208 -2.06004154
F
Significance F
125.108005 8.4617E-25
P-value
Lower 95% Upper 95% Lower 95.0%
0.39258546 -0.0028145 0.00706267 -0.0028145
3.9677E-22 0.91161561 1.17889854 0.91161561
0.00034173 0.22117681 0.71020538 0.22117681
0.04405317 -0.52315603 -0.00731323 -0.52315603
Upper 95.0%
0.00706267
1.17889854
0.71020538
-0.00731323
Chapter 13
The Cost of Capital for Goff Computer, Inc.
Input area:
Bond 2013 maturity book value

2013 bond price
2013 bond YTM
2018 bond price
2018 bond YTM
2028 bond price
2028 bond YTM
2038 bond price
2038 bond YTM
BV of debt (balance sheet)
BV of equity per share
Stock price
Shares outstanding (billions)
Beta
3-month Treasury bill rate
Market risk premium
Bond 1 price
Bond 1 YTM
Tax rate
600
94.367
6.221%
500
92.106
6.811%
300
91.672
7.949%
400
80.725
8.254%
1,851
2.139
11.20
1.94
1.410
0.10%
7.00%
100.433
5.124%
35%
$
$
$
Output area:
2) RE from CAPM
3)
Company
Apple Inc.
Dell
Hewlett Packard
Sun Microsystems
Ingram Mico Inc.
Tech Data Corp.
Electronics for Imaging
9.97%
Beta
1.87
1.41
1.19
1.92
1.18
1.28
1.40
Palm, Inc.
Digi International
Agilysis, Inc.
Rackable Systems, Inc.
SeaChange International
MIPS Technologies
Silicon Graphics
Cray Inc.
Industry Average
2.16
0.62
1.84
1.62
0.62
1.89
1.28
1.87
1.48
RE with industry beta
10.44%
Book value
(millions)
4)
Bond 1
Bond 2
Bond 3
Bond 4
Total
5) Book value of equity
Market value of equity
Book value of company
Market value of company
$
$
$
$
$
Percent
of total
600
0.33
500
0.28
300
0.17
400
0.22
1,800 $
1.00
4.1497
21.7280
5.9497
23.3526
WACC using book value
8.07%
WACC using market value
9.60%
billion
billion
million
million
Quoted
Market value Percent Yield to
price
(millions)
of total Maturity
94.367 $
566.202
0.35
6.221%
92.106
460.530
0.28
6.811%
91.672
275.016
0.17
7.949%
80.725
322.900
0.20
8.254%
$ 1,624.65
1.00
Book
values
2.07%
1.89%
1.32%
1.83%
7.12%
Market
values
2.17%
1.93%
1.35%
1.64%
7.08%
Chapter 16
Stephenson Real Estate Recapitalization
Input area:
Shares outstanding
Share price
Purchase price
Increase in cash flow
Current cost of capital
YTM on new debt
Equity weight in new capital structure
Tax rate
Output area:
2.
Assets
Total assets
3. a) Aftertax earnings increase

NPV
b) Assets
NPV of project
Total assets
New share price
New shares issued
Price
15,000,000
35.50
60,000,000
14,000,000
12.50%
8.00%
70%
40%
$
$
532,500,000
532,500,000
$
$
8,400,000
7,200,000
532,500,000
7,200,000
539,700,000
35.98
1,667,593
60,000,000
532,500,000
7,200,000
599,700,000
16,667,593
35.98
d) PV of the project
67,200,000
Old assets
PV of project
Total assets
$
$
532,500,000
67,200,000
599,700,000
601,620,000
b) Value unlevered
Tax shield
Total assets
$
$
599,700,000
24,000,000
623,700,000
New stock price
37.58
New shares outstanding

New share price
4. a) Market value of company
acciones en circulacin
Precio de la accin
Precio del terreno
Incremento del flujo de caja anual
Costo de capital
Tasa cupn del Bono
Yield to maturity
Porcentaje de capital
Tasa impositiva
Recomendamos emitir deuda,. Porque ele costo de esa fuente es menor
c) Cash
Old assets
NPV of project
Total assets
Total
$
$
$
Equity
Total Debt & Equity
$
$
532,500,000
532,500,000
Equity
Total Debt & Equity
$
$
539,700,000
539,700,000
Equity
Total Debt & Equity
$
$
599,700,000
599,700,000
Equity
Total Debt & Equity
$
$
599,700,000
599,700,000
Debt
Equity
Total Debt & Equity
60,000,000
563,700,000
623,700,000
Chapter 17
McKenzie Corporation's Capital Budgeting
Input Area:
Recession
Normal
Expansion
Probability
0.30 $
0.50 $
0.20 $
Without
expansion
30,000,000
35,000,000
51,000,000
$
$
34,000,000
8,400,000
$
$
36,700,000
45,700,000
600,000
$
$
$
Without
expansion
30,000,000
34,000,000
34,000,000
32,800,000
Face value of debt

Cost of expansion
Output Area:
1) Expected value of firm

Without expansion
With expansion
Expected NPV
2) Value of debt
Recession
Normal
Expansion
Expected value of debt
3) Value of equity
Recession
Normal
Expansion
Without
expansion
$
$
$
1,000,000
17,000,000
Expected value of equity
3,900,000
Bondholder gain with expansion
900,000
Stockholder gain with expansion
Stockholder NPV
8,100,000
(300,000)
$
$
$
With
expansion
33,000,000
46,000,000
64,000,000
$
$
$
With
expansion
33,000,000
34,000,000
34,000,000
33,700,000
With
expansion
$
$
$
12,000,000
30,000,000
12,000,000
Chapter 18
The Leveraged Buyout of Cheek Products, Inc.
Input area:
2010
2011
2012
2,115.00 $ 2,371.00 $ 2,555.00
562.00
738.00
776.00
373.00
397.00
413.00
1,180.00 $ 1,236.00 $ 1,366.00
472.00
494.40
546.40
708.00 $ 741.60 $ 819.60
Sales
Costs
Depreciation
EBT
Tax
Net income
Capital expenditures
Change in NWC
Asset sales
$
$
$
215 $
(94) $
1,092 $
Interest payments
1,482
$
$
Terminal growth rate

Terminal D/E
Return on assets
Pretax cost of debt
Pretax debt after Year 5
Tax rate
Shares outstanding (million)
186 $
(143) $
791
234
78
1,430
1,534
$ 1,886.60
920.60
613.60
3.50%
25.00%
14.00%
12.50%
8.00%
40.00%
167
Output area:
1)
2)
Unlevered cash flows
2,052.00
PV unlevered CF
4,928.50
Terminal value of future

unlevered CF in Year 5
9,583.11
Value today of terminal

value
4,977.17
Interest tax shield
592.80
572.00
3)
PV of interest tax shield
Levered equity return

WACC
4)
2,126.55
15.20%
13.36%
Terminal value of company
$ 10,205.14
Terminal value of tax shields
622.03
Value of terminal tax shields

today
345.18
PV unlevered CF
PV tax shields
Value of company
$ 9,905.67
$ 2,471.73
$ 12,377.41
Share price to offer
74.12
2013
2014
$ 2,616.00 $ 2,738.00
839.00
884.00
434.00
442.00
$ 1,343.00 $ 1,412.00
537.20
564.80
$ 805.80 $ 847.20
$
$
237
73
$
$
234
83
1,495
1,547
929.80
972.20
598.00
618.80
Chapter 20
East Coast Yachts Goes Public
Input area:
Underwriter fee
Legal fees and expenses
SEC registration fees
Filing fees
NASDAQ listing fee
Transfer agent fee
Engraving expenses
Other expenses
Audit cost/year
IPO size
$
$
$
$
$
$
$
$
$
7.00%
1,500,000
15,000
20,000
100,000
8,500
525,000
75,000
300,000
70,000,000
Underwriter fees
4,900,000
Total fees excluding underwriter fees
2,243,500
Total fees
7,143,500
Net amount raised
65,100,000
Output area:
Fee as a percentage of funds raised
10.97%
Chapter 21
The Decision to Lease or Buy at Warf Computers
Input area:
Purchase price
Year 1 depreciation
Year 2 depreciation
Year 3 depreciation
Year 4 depreciation
Salvage value
Lease payment
Security deposit
Cost of debt
Tax rate
Alternative lease:
Lease payments
Year 2 salvage value
$
$
$
$
$
2,500,000
0.333
0.444
0.148
0.074
300,000
650,000
150,000
11%
35%
1,150,000
1,000,000
Output area:
1) Aftertax cost of debt
7.15%
Year 0
2,500,000
Saved purchase
Lost salvage value
Lost depreciation tax shield
Security deposit
Lease payment
Tax on lease payment
Cash flow from leasing
(150,000)
(650,000)
227,500
1,927,500 $
NAL
22,917.57
557,500
Year 0
2,500,000
2) Book value in Year 2
Saved purchase
Lost salvage value
Year 1
(291,375)
(650,000)
227,500
(713,875)
Year 1
Lost depreciation tax shield

Lease payment
Tax on lease payment
Cash flow from leasing
NAL
PV of lease payments
(291,375)
(1,150,000)
(1,150,000)
402,500
402,500
1,752,500 $ (1,038,875)
(291,533.21)
$2,186,036.04
puters
Year 2
Year 3
Year 4
(388,500)
(129,500)
(195,000)
(64,750)
150,000
(650,000)
227,500
(811,000) $
(650,000)
227,500
(552,000) $ (109,750)
Year 2
(845,125)
(388,500)
$ (1,233,625)
Chapter 22
Clissold Industries Options
Input Area:
Current stock price $

Exercise price
$
Expiration (months)
Risk-free rate
Standard deviation
50
55
6
4%
78.82%
Output Area:
d1
0.1435
d2
(0.4138)
N(d1)
0.5571
N(d2)
0.3395
Call
9.55

Target Cell (Value Of)

Cell
Name
$D$22 Call
Original Value
$
22.48
Adjustable Cells
Cell
Name
$D$11 Standard deviation

78.59%
144.80%
Constraints
NONE
Final Value
$
27.65


Cell
Name
$D$22 Call
Original Value
$
23.30
Adjustable Cells
Cell
Name

144.80%
109.42%
Constraints
NONE
Final Value
$
19.45


Cell
Name
$D$22 Call
Original Value
$
15.41
Adjustable Cells
Cell
Name

109.42%
83.16%
Constraints
NONE
Final Value
$
11.95


Cell
Name
$D$22 Call
Original Value
$
10.16
Adjustable Cells
Cell
Name

83.16%
78.82%
Constraints
NONE
Final Value
$
9.55
Chapter 23
Exotic Cuisine Employee Stock Options
Input Area:
Current stock price

Exercise price
Expiration (years)
Risk-free rate
Standard deviation
$
$
36.28
40
10
4.40%
60.00%
Output Area:
d1
1.1291
d2
(0.7682)
N(d1)
0.8706
N(d2)
0.2212
Call
25.89
Chapter 24
S&S Air's Convertible Bond
Input area:
Industry PE
Company EPS
Conversion price (stock)
Maturity (years)
Convertible bond coupon
Conversion value of bond
Plain vanilla coupon
$
$
$
$
12.50
1.60
25.00
20.00
6%
800
7%
Output area:
Stock price
Intrinsic bond value
$ 893.22
Floor value
$ 893.22
Conversion ratio
Conversion premium
Option value
20.00
32.00
25.00%
$ 106.78
Chapter 25
Williamson Mortgage, Inc.
Input area:
Mortgage value
Years
Interest rate
4) Interest rate
5) Interest rate
500,000
25
6.50%
7.40%
5.80%
Output area:
1) Mortgage payment
3,376.04
4) Mortgage value
$ 460,892.97
5) Mortgage value
$ 534,071.83
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
Input Area:
A/R
Percent uncollectible
Collection period
% of purchases for next Q sales
Suppliers paid
% of sales for expenses
Interest and dividends
Outlay in third Q
Beginning cash balance
Target cash balance
Borrowing rate
Invested securities
Beginning short-term borrowing
Last years' sales
553,000
10%
57
50%
53
25%
148,000
260,000
149,500
90,000
1.2%
0.5%
-
$
$
$
$
Q1
Growth rate in sales
26
27
28
Output Area:
29
30
31
32
Sales next year

Sales following year
33
34
35
36
37
38
39
40
41
42
43
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
735,000
Q2
761,000
Q3
817,000
Q4
709,000
821,880.00
882,360.00
765,720.00
8.00%
$
$
793,800.00
857,304.00
Quarterly cash flow

Q1
Q2
497,700.00 $
502,740.00 $
291,060.00
301,356.00
(233,730.00)
(241,998.00)
(168,942.00)
(181,374.00)
(198,450.00)
(205,470.00)
(148,000.00)
(148,000.00)
39,638.00
27,254.00
Q3
520,524.00 $
323,532.00
(259,806.00)
(157,398.00)
(220,590.00)
(148,000.00)
(260,000.00)
(201,738.00) $
Q4
558,828.00
280,764.00
(225,462.00)
(176,223.60)
(191,430.00)
(148,000.00)
98,476.40
A
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
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:
Q4
14,654.00
98,476.40
113,130.40
90,000.00
23,130.40
Short-term Financial Plan

90,000.00 $
90,000.00 $
39,638.00
27,254.00
(39,935.50)
(27,751.18)
297.50
497.18
$
90,000.00 $
90,000.00 $
(90,000.00)
(90,000.00)
$
$
$
90,000.00 $
(201,738.00)
635.93
127,186.68
73,915.39
90,000.00 $
(90,000.00)
$
90,000.00
98,476.40
(23,674.03)
(886.98)
(73,915.39)
90,000.00
(90,000.00)
-
$
$
Q2
189,138.00
27,254.00
216,392.00
90,000.00
126,392.00
Q3
216,392.00 $
(201,738.00)
14,654.00 $
90,000.00
(75,346.00) $
$
$
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
Cash Balance
Q1
149,500.00 $
39,638.00
189,138.00 $
90,000.00
99,138.00 $
59,500.00
99,435.50
$59,500.00
$99,435.50
$127,186.68
$73,915.39
297.50
497.18
635.93
(886.98)
543.63
99,435.50
127,186.68
earns
earns
earns
costs
127,186.68
73,915.39
$297.50
$497.18
$635.93
$886.98
23,674.03
73,915.39
-
in income.
in income.
in income.
in interest.
H
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
H
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81


Cell
Name
$F$68 Ending short-term debt Q3
Original Value
$
73,915.39
Adjustable Cells
Cell
Name
$D$24 Growth rate in sales Q1

8.00%
48.00%
Constraints
NONE
Final Value
$
-
Chapter 27
Cash Management at Richmond Corp.
Input Area:
Number of lockboxes
Daily payments
Investment account rate
Wire transfer cost
Sweep time
Money market yield
ACH transfer cost
4
235,000
0.068%
0.20%
14
0.075%
200
Output:
1. FVA
$13,191,889.06
2. FVA
$ 13,203,190.71
The company should go ahead with the plan.
3. ACH transfer cost
400.98
Chapter 28
Credit Policy at Braam Industries
Input Area:
Current policy
Option 1
Option 2
Option 3
$
$
$
$
Variable costs
Interest rate
Sales
140,000,000
158,000,000
149,000,000
167,000,000
45%
6.00%
Output Area:
Daily interest rate
0.01597%
Current policy:
Daily sales
Variable costs (daily)
Defaults on sales (daily)
Administrative costs (daily)
Interest rate
$
$
$
$
383,561.64
172,602.74
7,287.67
6,136.99
0.6085%
NPV
$ 32,291,008.61
Option 1:
Daily sales
Interest rate
$
$
$
$
NPV
$ 32,369,467.12
Option 2:
432,876.71
194,794.52
12,553.42
11,687.67
0.6567%
Default rate
1.90%
2.90%
2.20%
2.50%
Daily sales
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
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
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
640,000,000
449,000,000
60,000,000
64,000,000
67,000,000
15,200,000
51,800,000
20,720,000
31,080,000
16,000,000
12,000,000
28,000,000
28,000,000
28,000,000
40%
120,000,000
20,000,000
20,000,000
720,000,000
240,000,000
0.5000
1.0000
6%
13%
11%
8%
1.30
88,000,000
440,000,000
6,400,000
Stock price of acquirer

Shares outstanding in acquirer
94.00
14,400,000
Output Area:
Current debt weight

Current equity weight
Beta of debt
Hybrid beta
Discount rate for normal operations
0.33
0.67
0.29
0.96
12.73%
New debt weight

New equity weight
New stock beta
Discount rate for dividends
0.50
0.50
1.59
17.13%
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
(440,000,000)
120,000,000
(320,000,000)
$
$
(440,000,000)
120,000,000
(320,000,000)
1) NPV
2) Highest price to offer
$ 471,890,413.71
Price per share offered

Highest share price to offer
3) New share price
31,890,413.71
$
$
68.75
73.73
96.21
Exchange ratio
4) Highest exchange ratio
0.7145
0.7314
$
$
$
$
$
$
$
Year 2
720,000,000
504,000,000
64,000,000
72,000,000
80,000,000
17,600,000
62,400,000
24,960,000
37,440,000
$
$
$
20,000,000
20,000,000
40,000,000
12,800,000
27,200,000
40,000,000
Year 3
800,000,000
560,000,000
66,000,000
80,000,000
94,000,000
19,200,000
74,800,000
29,920,000
44,880,000
$
$
$
20,000,000
14,400,000
34,400,000
12,800,000
21,600,000
34,400,000
Year 4
900,000,000
632,000,000
66,400,000
90,400,000
111,200,000
20,000,000
91,200,000
36,480,000
54,720,000
$
$
$
24,000,000
96,000,000
120,000,000
12,000,000
21,600,000
33,600,000
Year 5
1,000,000,000
705,000,000
67,000,000
97,000,000
131,000,000
21,600,000
109,400,000
43,760,000
65,640,000
24,000,000
5,600,000
29,600,000
9,600,000
20,000,000
29,600,000
Year 1
Year 2
Year 3
Year 4
31,080,000
10,240,000
20,000,000
23,280,000
20,000,000
33,120,000
31,080,000
30,240,000
43,280,000
33,120,000
26,533,865
$
$
7,463,438
17,146,776
$
$
14,485,766
15,876,645
17,594,151
26,533,865
24,610,215
30,362,411
17,594,151
Year 5
$
45,640,000
720,000,000
(240,000,000)
1,005,640,000
20,698,703
$
$
$
395,431,037
(163,339,967)
252,789,772
Chapter 31
East Coast Yachts Goes International
Input Area:
Sales per month

Commission
Current exhange rate ($/)
Production costs
3) Exhange rate ($/)
8,000,000
5%
1.45
80%
1.30
Sales less commission

Dollar value of sales
7,600,000
11,020,000
Total sales
Production costs
$
$
11,600,000
9,280,000
Profit at current exchange rate
1,740,000
$
$
9,880,000
9,280,000
Profit at new exchange rate
600,000
Breakeven exchange rate ($/)
1.2211
Output Area:
3) At revised exchange rate:

Dollar value of sales
Production costs

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Corporate Finan

Ross, Westerfield, and Jaf

field, and Jaffe

s may require that

Balance Sheet (in $ thousands)

Acquisition of fixed assets

Income Statement (in $ thousands)

Net capital spending

Operating cash flow

Total liabilities and

Net working capital cash flow

Cash flow from assets

Cash flow to creditors

Cash flow to stockholders

Statement of cash flows

Liabilities & Equity

Liabilities & Equity

Liabilities & Equity

5) EFN if minimum FA purchase is

Liabilities & Equity

Depreciation as a percentage of fixed assets

Present value of salary

PV of salary in two years

Value of salary today

Mount Perry MBA

PV of salary in one year

PV of attending Mt. Perry

Aftertax beginning salary

Pretax beginning salary

5. Current job PV minus

Time 0 cash flow

Total cash flow

Research and development

Nominal price increase

New working capital:

Book value of equipment

Aftertax salvage value:

Operating cash flow

Discounted cash flow

Nominal required return

Real required return

Next thinning will occur in

years, and will reoccur at this same interval.

Aftertax cost of convservation

Next thinning will occur in

Next thinning will occur in

Next thinning will occur in

Year bond is called

2) Price of coupon bond

Price of zero coupon bond

3) Repayment of coupon bonds

4) Year 1 interest payments:

Value of zero in one year

5) Make whole price

Make whole price

Shares owned by each sibling

Blue Ribband Motors Corp.

Nautilus EPS w/o write-off

Stock value in Year 5

Value per share