Input data

Par value
Annual coupon
Conversion price
Stock price
Straight-debt-yield
Maturity
Conversion ratio
Bond's conversion value
Price of straight bond
Floor price

$1,000.00
5.00%
$35.00
$30.00
8.00%
10
28.57
$857.14
$798.70
$857.14

Coupon pmt

$50.00

Maturity
Par value
Straight-bond yield

20
$1,000
10%

Current bond value =

Price paid per bond

with warrant

Current bond value =

$850

Annual payment of bond

N
I/Y
PV
FV

20
10%
-$850
$1,000

Payment
Coupon rate

$82.38
8.24%

Stock price
Warrants per bond
Exercise price
Warrant value
Price paid per bond with warrants

Value of warrants per bond

$42
75
$47
$2
$1,000

EBIT
Interest rate
Debt outstanding
Shares outstanding

EBIT
Interest expense
Taxable income
Tax expense
Net income
Number of shares
Equity ratio (ws)
Capital budget
Net income
Required equity (ws*Cap.Bgt)
Dist. Paid (NI-Req.equity)
Payout ratio (Div/NI)
Dividend per share

$2,000,000
10%
$5,000,000
5,000,000

$2,000,000
$500,000
$1,500,000
$600,000
$900,000
5,000,000
60%
$850,000
$900,000
$510,000
$390,000
43.33%
$0.08

Capital budget
% Debt
% Equity
Tax rate

$850,000
40%
60%
40%

Value of operations
Short-term investments
Debt
Number of shares

Value of operations
Short-term investments
Est. total intrinsic value
All debt
Est. intrinsic value of equity
Number of shares
Est. intrinsic stock price

$1,000
$100
$300
100
Before
$1,000
$100
$1,100
$300
$800
100
$8

After
$1,000
$50
$1,050
$300
$750
100
$7.50

Dividend payment

$50

Current situation
wd
ws

rs=

rRF
rM-rRF
T
rs

20%
80%

rRF+bL1*(rM-rRF)

6%
5%
40%
12%

bL1=
bL1=

bU=

bL1
1+(1-T)*(wd/ws)

Target capital structure

wd
ws
bL2=
bU*(1+(1-T)*(wd/ws))
New cost of equity
rs2=
rRF+bL2*(rM-rRF)

1.04

50%
50%
=

1.67

14.35%

rs-rRF
rM-rRF
1.2

Before repurchase
g
0%
wd
0%
EBIT
$80,000
T
40%
rs
10%
# shs outst'g
10000
P0
$48
% financed with debt (wd)
VOP
ST investment
Est. total intrinsic value
Debt
Est. intrinsic value of equity
# shs outst'g
Est. intrinsic price per share

0%

New situtation
ws
wd
WACC
VOP
New debt

35%

35%

Before
After
Post
$480,000
$510,638
$510,638
0
$178,723
0
$480,000
$689,361
$510,638
0
$178,723
$178,723
$480,000
$510,638
$331,915
10000
10000
$6,500.01
$48.00
$51.06
51.06

w situtation
65%
35%
9.40%
$510,638
$178,723

WACC
Net investment cost (depreciable basis)
Units sold
Average price per unit, Year 1
Fixed op. cost excl. deprec. (constant)
Variable op. cost/unit, Year 1
Annual depreciation rate
Expected inflation rate per year
Tax rate

10.00%
$200,000
50,000
$25.00
$150,000
$20.20
33.33%
5.00%
40.00%
Now

Units sold
Price per unit
Variable cost per unit
Sales
Variable cost
Fixed cost
Depreciation expense
EBIT
Tax expense
After-tax profit
Adjustment to FCF
Add back: Depreciation
Investment
FCF
NPV

33.33%

Year 1
50,000
$25.00
$20.20
$1,250,000
$1,010,000
$150,000
$66,667
$23,333
$9,333
$14,000
$66,667

-$200,000
-$200,000
$17,645.88

$80,667

33.33%

33.33%

Year 2
Year 3
50,000
50,000
$26.25
$27.56
$21.21
$22.27
$1,312,500 $1,378,125
$1,060,500 $1,113,525
$150,000
$150,000
$66,667
$66,667
$35,333
$47,933
$14,133
$19,173
$21,200
$28,760
$66,667

$66,667

$87,867

$95,427

WACC:
Year
Cash flows
Cumulative cash flow
NPV
IRR
MIRR
Payback

9.00%
0
-1,000.00
-1,000.00
$265.65
23%
18%
2.00

1
500.00
-500.00

2
500.00
0.00

3
500.00
500.00

WACC:
Year
CFS
CFL
Project S
Year
CFS
NPV
EAA
Project L
Year
CFL
NPV
EAA

7.75%
0
$1,050
$1,050

0
-$1,050

1
$675
$360

2
$650
$360

$360

$360

1
$675

2
$650

1
$360

2
$360

3
$360

4
$360

$136.31
$76.18

0
-$1,050
$149.03
$44.75

D1
rd
T
wd
wS

7.75%
40%

$0.65
6%
$15
10%

g
P0
F

45%
55%

New cost of capital

rS

=
=

WACC =
=

g+

D1
P0(1-F)

10.81%
rd*(1-T)*wd+rs*ws
8.04%

Last year's sales = S0

Sales growth rate = g
Last year's total assets = A0*
Last year's profit margin = PM
Last year's accounts payable
Last year's notes payable
Last year's accruals
Target payout ratio (POR)

$200,000
40%
$135,000
20.00%
$50,000
$15,000
$20,000
25.00%

AFN = (A0*/S0)S
= (A0*/S0)(gS0)
=
AFN =

$54,000
-$16,000

(L0*/S0)S
S1 M (1 POR)
(L0*/S0)(gS0)
(1+g)S0 PM (1 POR)
28,000
42,000

Balance Sheet (Millions of $)

Assets
Cash and securities
Accounts receivable
Inventories
Total current assets
Net plant and equipment
Total assets
Liabilities and Equity
Accounts payable
Notes payable
Accruals
Total current liabilities
Long-term bonds
Total debt
Common stock
Retained earnings
Total common equity
Total liabilities and equity
Income Statement (Millions of $)
Net sales
Operating costs except depr'n
Depreciation
Earnings bef int and taxes (EBIT)
Less interest
Earnings before taxes (EBT)
Taxes
Net income
Other data:
Shares outstanding (millions)
Common dividends
Int rate on notes payable & L-T bonds
Federal plus state income tax rate
Year-end stock price

2015
$1,554.00
$9,660.00
$13,440.00
$24,654.00
17,346.0
$42,000.00
$ 7,980.0
$5,880.00
4,620.0
$18,480.00
10,920.0
$29,400.00
$3,360.00
9,240.0
$12,600.00
$42,000.00
$2,015.00
$58,800.00
$54,978.00
$1,029.00
$2,793.00
$1,050.00
$ 1,743.0
$610.10
$1,133.00
175
509.83
6.25%
35%
$77.69

24654

Current ratio

Quick ratio

Inventory turnover
ratio

EBITDA coverage
ratio

ROE

CA
CL

$24,654.00
$18,480.00

1.33

CA-Inventory
CL

$11,214.00
$18,480.00

0.61

Sales
Inventory

58,800.00
13,440.00

4.38

3822
1050

3.64

1133
$12,600.00

8.99%

EBIT+Depr.&Amort.+Lease pmt
=
Interest expense+Lease pmt+Loan pmt
NI-Div.
Shareholders' equity