Corporate Fi Ross, Westerfield, a 9th edition Case Solution 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 the "Analysis ToolPak" or "Solver Add-in" be install To install these, click on "Tools|Add-Ins" and selec and "Solver Add-In."
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Corporate Finance Ross, Westerfield, and Jaffe
9th editionCase Solutions
Input boxes in tanOutput boxes in yellowGiven data in blueCalculations in redAnswers 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 Ross, Westerfield, and Jaffe
9th editionCase Solutions
To install these, click on "Tools|Add-Ins" and select "Analysis ToolPak"
Chapter 2 Cash Flows at Warf Computer, Inc.
Input area:
Balance Sheet (in $ thousands)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 liabilitiesFixed 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
Income Statement (in $ thousands)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 flowEarnings before interest and taxes $ 1,332 Depreciation 159 -Current taxes 386 Operating cash flow $ 1,105
Net capital spendingAcquisition 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
Net working capital cash flowEnding NWC $ 728 Beginning NWC 586 NWC cash flow $ 142
Cash flow from assetsOCF $ 1,105 -Net capital spending 647 -Change in NWC 142 Cash flow from assets $ 316
Cash flow to creditorsInterest $ 95 Retirement of debt 98 Debt service $ 193 Proceeds from sale of long-term debt (118) Total $ 75
Cash flow to stockholdersDividends $ 212 Repurchase of stock 40 Cash to stockholders $ 252 Proceeds from new stock issue (11) Total $ 241
AlternativelyBeginning total equity $ 1,539 Ending total equity (2,040)Dividends 212 Retained earnings 530
$ 241
Statement of cash flowsOperationsNet 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
Balance Sheet (in $ thousands)
Chapter 3Ratios and Financial Planning at East Coast Yachts
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
Assets Liabilities & EquityCurrent 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
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 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
Assets Liabilities & EquityCurrent 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
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
Year 0 Year 1 Year 2 Year 3 Year 4OEM:Automobiles sold 5,600,000 5,740,000 5,883,500 6,030,587 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 2,653,458 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
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 4Operating 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
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 8,200,587 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
Chapter 8Financing East Coast Yachts Expansion Plans with a Bond Issue
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
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%
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
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%
Chapter 10A Job at East Coast Yachts
Input area:
10-year annual return Standard deviationBledsoe 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%
Chapter 13The Cost of Capital for Goff Computer, Inc.
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) 9.97%
3) Company BetaApple Inc. 1.87 Dell 1.41 Hewlett Packard 1.19 Sun Microsystems 1.92 Ingram Mico Inc. 1.18 Tech Data Corp. 1.28
RE from CAPM
Electronics for Imaging 1.40 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
10.44%
4)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 billionMarket value of equity $ 21.7280 billionBook value of company $ 5.9497 millionMarket value of company $ 23.3526 million
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
Chapter 17McKenzie Corporation's Capital Budgeting
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
Chapter 25Williamson Mortgage, Inc.
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
Chapter 26Keafer Manufacturing Working Capital Management
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: 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 costQ1 $ 297.50 Q2 497.18 Q3 635.93 Q4 (886.98)Cash generated by short-term financing $ 543.63
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Microsoft Excel 12.0 Answer ReportWorksheet: [Jaffe 9th edition Case Solutions.xlsx]Chapter 26Report 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 CellsCell Name Original Value Final Value
$D$24 Growth rate in sales Q1 8.00% 48.00%
ConstraintsNONE
Chapter 27Cash Management at Richmond Corp.
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.
Year 1 Year 2Sales $ 640,000,000 $ 720,000,000 Production costs 449,000,000 504,000,000 Depreciation 60,000,000 64,000,000 Other expenses 64,000,000 72,000,000 EBIT $ 67,000,000 $ 80,000,000 Interest 15,200,000 17,600,000 Taxable income $ 51,800,000 $ 62,400,000 Taxes (40%) 20,720,000 24,960,000 Net income $ 31,080,000 $ 37,440,000
InvestmentsNet working capital $ 16,000,000 $ 20,000,000 Fixed assets 12,000,000 20,000,000 Total $ 28,000,000 $ 40,000,000
Sources of financingNew debt $ 28,000,000 $ 12,800,000 Profit retention - 27,200,000 Total $ 28,000,000 $ 40,000,000
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 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 Year 1Acquisition of Hybrid $ (440,000,000)Dividends from Hybrid $ 120,000,000 $ 31,080,000 Tax-loss carryforwardsTerminal value of equityTerminal value of debtTotal $ (320,000,000) $ 31,080,000
Present valuesAcquisition of Hybrid $ (440,000,000)Dividends from Hybrid $ 120,000,000 $ 26,533,865 Tax-loss carryforwardsTerminal value of equityTerminal value of debtTotal $ (320,000,000) $ 26,533,865
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