5.manual Case

Corporate Finance
Ross, Westerfield, and Jaffe

10th 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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nance
and Jaffe
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Chapter 2
Cash Flows at Warf Computer, Inc.
Input area:
Balance Sheet (in $ thousan

2012
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
348
551
493
71
1,463
3,191
1,031
2,160
610
2,770
Total assets
4,233
Acquisition of fixed assets

Sale of fixed assets
New debt issued
Debt retired
New stock issued
Stock repurchased
$
$
$
$
$
$
1,140
330
175
151
12
48
Income Statement (in $ thousands)

Sales
$
Cost of goods sold
Selling, general, and administrative
Depreciation
5,813
3,430
652
191
Operating income
Other income
EBIT
Interest expense
Pretax income
Taxes
Current
Deferred
Net income
896
Dividends
Retained earnings
$
$
225
671
1,598
191
467
1,322
$
$
$
1,140
(330)
810
2,770
2,151
191
810
$
$
1,540
58
1,598
105
1,493
597
Output area:
Operating cash flow

Earnings before interest and taxes
Depreciation
-Current taxes
Operating cash flow
Net capital spending

Capital spending
Alternatively,
Ending fixed assets
-Beginning fixed assets
Depreciation
Capital spending
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
$
$
$
$
$
$
$
$
874
704
170
1,322
810
170
342
105
151
256
(175)
81
883
(907)
105
81
225
48
273
(12)
261
1,848
(2,483)
225
Retained earnings
$
671
261
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)
$
$
896
191
130
(37)
17
20
(118)
(11)
1,088
(1,140)
330
(810)
(151)
175
6
(225)
(48)
12
(231)
47
Balance Sheet (in $ thousands)

2011
Current liabilities
$
301
Accounts payable
514
Notes payable
510
Accrued expenses
60
Total current liabilities
$
1,385
Long-term liabilities
Deferred taxes
$
2,446
Long-term debt
840
Total long-term liabilities
$
1,606
545
Stockholders equity
$
2,151
Preferred stock
Common stock
Capital surplus
Accumulated retained earnings
Less treasury stock
Total equity
3,536
Total liabilities and

shareholders equity
2012
$
2011
314 $
85
190
589 $
294
79
308
681
254 $
907
1,161 $
124
883
1,007
16 $
97
611
1,904
145
2,483 $
16
97
599
1,233
97
1,848
4,233 $
3,536
$
$
$
$
467
130
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
234,300,000
165,074,000
27,991,000
7,644,000
33,591,000
4,212,600
29,378,400
11,751,360
17,627,040
Dividends
Add to RE
$
$
10,576,224
7,050,816
3,650,700
6,567,600
7,363,700
17,582,000
Fixed assets
Net PP&E
112,756,900
Total assets
130,338,900
Growth rate
Minimum FA purchase
$
$
Assets
Current Assets
Cash
Accounts rec.
Inventory
Total CA
Output area:
20%
30,000,000
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
0.74
0.43
1.80
22.42
35.68
0.49
0.97
1.97
7.97
7.52%
13.52%
26.64%
3) Retention ratio
Sustainable growth rate
0.40
11.93%
Sales
COGS
Other expenses
Depreciation
EBIT
Interest
Taxable income
Taxes (40%)
Net income
Dividends
Add to RE
12,346,669
8,231,113
4,086,102
7,350,886
8,241,933
19,678,921
$
$
$
262,243,846
184,761,590
31,329,353
7,644,000
38,508,902
4,212,600
34,296,302
13,718,521
20,577,781
Assets
Current Assets
Cash
Accounts rec.
Inventory
Total CA
Fixed assets
Net PP&E
Total Assets
$
$
126,204,879
145,883,800
EFN
4,488,478
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
0.74
0.43
1.80
22.42
35.68
0.49
0.90
1.96
9.14
7.85%
14.11%
27.66%
$
$
$
$
Dividends
Add to RE
281,160,000
198,088,800
33,589,200
7,644,000
41,838,000
4,212,600
37,625,400
15,050,160
22,575,240
13,545,144
9,030,096
4,380,840
7,881,120
8,836,440
21,098,400
Assets
Current Assets
Cash
Accounts rec.
Inventory
Total CA
Fixed assets
Net PP&E
Total Assets
$
$
135,308,280
156,406,680
EFN
12,299,824
5) EFN if minimum FA purchase is
$ 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
Dividends
Add to RE
12,812,992
8,541,995
4,380,840
7,881,120
8,836,440
21,098,400
Fixed assets
Net PP&E
142,756,900
Total Assets
163,855,300
EFN
20,236,545
$
$
$
281,160,000
198,088,800
33,589,200
9,677,756
39,804,244
4,212,600
35,591,644
14,236,658
21,354,987
Assets
Current Assets
Cash
Accounts rec.
Inventory
Total CA
oast Yachts
Liabilities & Equity

Current liabilities
Accounts payable
$
7,753,000
Notes payable
15,936,300
Total CL
$
23,689,300
Long-term debt
40,480,000
Shareholder equity
Common stock
Retained earnings
Total equity
6,200,000
59,969,600
66,169,600
Total L&E
130,338,900

Current liabilities
Accounts payable
$
8,677,663
Notes payable
17,836,947
Total CL
$
26,514,610
Long-term debt
Shareholder equity
Common stock
Retained earnings
Total equity
40,480,000
6,200,000
68,200,713
74,400,713
Total L&E
141,395,323

Current liabilities
Accounts payable
$
9,303,600
Notes payable
19,123,560
Total CL
$
28,427,160
Long-term debt
40,480,000
Shareholder equity
Common stock
Retained earnings
6,200,000
68,999,696
Total equity
Total L&E
$
$
75,199,696
144,106,856
6.78%
142,756,900
9,677,756

Current liabilities
Accounts payable
$
9,303,600
Notes payable
19,123,560
Total CL
$
28,427,160
Long-term debt
Shareholder equity
Common stock
Retained earnings
Total equity
Total L&E
40,480,000
$
$
6,200,000
68,511,595
74,711,595
143,618,755
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
65,000
40
3%
26%
$
$
$
$
70,000
3,000
110,000
20,000
4%
31%
$
$
$
$
85,000
4,500
18,000
92,000
3.5%
29%
$
$
3,000
2,000
Discount rate
6.50%
Output area:
3. Current job
Aftertax income
Present value of salary
48,100.00
1,013,223.78
Wilton MBA
PV of tuition & expenses
(151,239.44)
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
1,452,258.71
Mount Perry MBA

PV of tuition & expenses
(94,500.00)
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
1,291,111.70
1,152,296.31
Value in 2 years
1,306,963.29
Aftertax beginning salary
54,959.83
Pretax beginning salary
79,651.92
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
(750,000,000)
130,000,000
180,000,000
190,000,000
245,000,000
205,000,000
155,000,000
135,000,000
95,000,000
(75,000,000)
12%
Output area:
Payback period
4.02
IRR
IRR
14.72% =IRR(D8:D17)
-60.88% =IRR(D8:D17,-0.99)
MIRR
13.05% =MIRR(D8:D17,D19,D19)
Profitability index
NPV
1.09 =NPV(D19,D9:D17)/-D8
$
67,747,130.88 =NPV(D19,D9:D17)+D8
(D8:D17,-0.99)
R(D8:D17,D19,D19)
V(D19,D9:D17)/-D8
V(D19,D9:D17)+D8
Chapter 6
Bethesda Mining
Input area:
Land cost
Aftertax land value
Equipment
Equipment salvage
Contract sales/tons
Contract $/ton
Year 1 production
Year 2 production
Year 3 production
Year 4 production
Spot market $/ton
Variable cost/ton
Fixed costs
NWC percent
Reclamation costs
Charitable expense
Tax rate
Required return
Year 1 depreciation
Year 2 depreciation
Year 3 depreciation
Year 4 depreciation
$
$
$
5,000,000
5,500,000
85,000,000
60%
500,000
$82
620,000
680,000
730,000
590,000
$76
$31
$4,100,000
5%
$2,700,000
$6,000,000
38%
12%
14.29%
24.49%
17.49%
12.49%
(85,000,000)
(5,500,000)
(2,506,000)
($93,006,000)
Output area:
Time 0 cash flow

Equipment
Land
NWC
Total
Sales
Contract
Spot
Total
$
$
Year 1
41,000,000 $
9,120,000
50,120,000 $
Year 2
41,000,000 $
13,680,000
54,680,000 $
Year 3
41,000,000
17,480,000
58,480,000
Sales
VC
FC
Dep
EBT
Tax
NI
+ Dep
OCF
58,480,000
22,630,000
4,100,000
14,866,500
16,883,500
6,415,730
10,467,770
14,866,500
25,334,270
Beginning NWC
Ending NWC
NWC cash flow
$
$
2,506,000 $
2,734,000
(228,000) $
2,734,000 $
2,924,000
(190,000) $
2,924,000
2,392,000
532,000
Total cash flow
21,003,670 $
26,010,270 $
25,866,270
Book value
72,853,500 $
52,037,000 $
37,170,500
Salvage
$
$
$
50,120,000
19,220,000
4,100,000
12,146,500
14,653,500
5,568,330
9,085,170
12,146,500
21,231,670
MV
BV
Taxes
$
$
$
Salvage CF
$
Time
0
1
2
3
4
5
6
Profitability index
Average accounting return
IRR
IRR
NPV
54,680,000
21,080,000
4,100,000
20,816,500
8,683,500
3,299,730
5,383,770
20,816,500
26,200,270
$
$
51,000,000
26,554,000
(9,289,480)
41,710,520
Cash flow
(93,006,000)
21,003,670
26,010,270
25,866,270
63,915,790
(1,674,000)
2,280,000
1.0615
10.58%
14.39%
14.39%
5,718,491.29
72,880,210
(20,125,790.00)
Year 4
$ 41,000,000
6,840,000
$ 47,840,000
Year 5
Year 6
$ 47,840,000
18,290,000
4,100,000
10,616,500
$ 14,833,500
5,636,730
$ 9,196,770
10,616,500
$ 19,813,270
$
2,392,000
2,392,000
2,700,000
$ (2,700,000)
(1,026,000)
(2,280,000)
$ (1,674,000) $ 2,280,000
$ (1,674,000) $ 2,280,000
$ 22,205,270 $ (1,674,000) $
$ 26,554,000
0.315
2,280,000
Chapter 6
Goodweek Tires, Inc.
Input area:
Research and development

Test marketing cost
Initial equipment cost
Equipment salvage value
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
Year 1 depreciation
Year 2 depreciation
Year 3 depreciation
Year 4 depreciation
$
$
$
$
10,000,000
5,000,000
160,000,000
65,000,000
$
$
41
29
6,200,000
2.50%
11.00%
$
$
62
29
32,000,000
2.00%
8.00%
1%
1%
43,000,000
40.00%
3.25%
13.40%
9,000,000
15%
14.29%
24.49%
17.49%
12.49%
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
6,200,000
24,800,000
2,728,000
41.00
32,000,000
2,560,000
62.00
$
$
Variable costs:
OEM market
Replacement market
Total
$
$
Revenue
Variable costs
Marketing and general costs
Depreciation
EBT
Tax
Net income
OCF
New working capital:
Beginning
Ending
NWC cash flow
Year 1
79,112,000
74,240,000
153,352,000
$
$
270,568,000
153,352,000
43,000,000
22,864,000
51,352,000
20,540,800
30,811,200
53,675,200
0 $
9,000,000
(9,000,000) $
9,000,000
40,585,200
(31,585,200)
111,848,000
158,720,000
270,568,000
Book value of equipment

Aftertax salvage value:
Market value
Taxes
Total
$
$
160,000,000 $
137,136,000
65,000,000
(6,006,400)
58,993,600
Year 0
$
Year 1
53,675,200
(160,000,000)
(9,000,000)
(169,000,000) $
(31,585,200)
22,090,000
Discounted cash flow
(169,000,000) $
19,479,718
NPV
IRR
Profitability index
Operating cash flow

Capital spending
Net working capital
Total cash flows
53,274,694.74
24.04%
1.3152
Year 2
Year 3
Year 4
6,355,000
25,420,000
2,796,200
42.76 $
6,513,875
26,055,500
2,866,105
44.59 $
6,676,722
26,706,888
2,937,758
46.50
32,640,000
2,611,200
64.66 $
33,292,800
2,663,424
67.42 $
33,958,656
2,716,692
70.31
119,553,838 $
168,827,528
288,381,366 $
127,790,574 $
179,578,718
307,369,292 $
136,594,786
191,014,560
327,609,346
84,562,471 $
78,967,715
163,530,185 $
86,676,532 $
77,239,296
163,915,828 $
88,843,446
78,784,082
167,627,528
288,381,366
163,530,185
44,397,500
39,184,000
41,269,680
16,507,872
24,761,808
63,945,808
307,369,292
163,915,828
45,840,419
27,984,000
69,629,045
27,851,618
41,777,427
69,761,427
$
$
327,609,346
167,627,528
47,330,232
19,984,000
92,667,586
37,067,034
55,600,551
75,584,551
43,257,205 $
46,105,394
(2,848,189) $
46,105,394
46,105,394
$
$
$
$
$
$
$
$
$
$
$
$
$
40,585,200 $
43,257,205
(2,672,005) $
97,952,000 $
69,968,000 $
49,984,000
Year 2
63,945,808 $
Year 3
69,761,427 $
(2,672,005)
61,273,803 $
(2,848,189)
66,913,238 $
Year 4
75,584,551
58,993,600
46,105,394
180,683,545
47,648,445 $
$
$
$
45,885,227 $
113,013,389
(55,986,611)
(0.512)
109,261,305
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%
140
50
18
$
$
$
$
150
300
145
225
Nominal required return

Inflation rate
Tax rate
Conservation fund
Conservation fund growth
Output area:
5,000
20
620
605
595
1,000
Harvest (MBF)
per acre
14.1
16.4
17.3
18.1
10.00%
3.70%
35%
$
250,000
3.20%
1P
16%
20%
22%
24%
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)
40,359,135
9,870,000
3,525,000
1,269,000
750,000
1,500,000
725,000
1,125,000
21,595,135
7,558,297
14,036,838
PV of first harvest
4,315,098
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 sam

958.17%
6.59%
Aftertax cost of convservation

Value of conservation at harvest
$
$
(162,500.00)
(176,226.22)
PV of future thinnings
PV of future harvests
PV of conservation fund
$
$
$
521,825.80
450,345.94
(49,182.52)
Total NPV
5,238,087.63
Harvest in
Revenue
Tractor cost
Road
25
$
47,051,600
11,480,000
4,100,000
1183.87%
years

Excavator piling
Broadcast burning
Site preparation
Planting costs
EBIT
Taxes
Net income (OCF)
PV of first harvest
1,476,000
750,000
1,500,000
725,000
1,125,000
25,895,600
9,063,460
16,832,140
3,852,930

1321.11%
1666.38%
Value of conservation at harvest $
(172,251.67)
$
$
$
378,470.46
291,644.04
(34,941.27)
Total NPV
4,488,103.20
Harvest in
30
years
Revenue
Tractor cost
Road
Excavator piling
Broadcast burning
Site preparation
Planting costs
EBIT
Taxes
Net income (OCF)
49,699,440
12,110,000
4,325,000
1,557,000
750,000
1,500,000
725,000
1,125,000
27,607,440
9,662,604
17,944,836
PV of first harvest
3,058,593


1808.52%

2330.24%
(169,473.53)
$
$
$
276,469.34
169,121.42
(24,986.89)
Total NPV
3,479,196.45
Harvest in
35
years
Revenue
Tractor cost
Road
Excavator piling
Broadcast burning
Site preparation
Planting costs
EBIT
Taxes
Net income (OCF)
52,057,863
12,670,000
4,525,000
1,629,000
750,000
1,500,000
725,000
1,125,000
29,133,863
10,196,852
18,937,011
PV of first harvest
2,403,388

2463.10%
3243.60%
(167,509.87)
$
$
$
202,995.97
97,575.62
(17,950.88)
Total NPV
2,686,008.85
2P
36%
40%
43%
45%
3P
48%
40%
35%
31%
nd will reoccur at this same interval.
Chapter 8
Financing East Coast Yachts Expansion Plans with a Bond Issue
Input area:
Years to maturity
Required return
Amount needed
Face value
$
$
20
6.50%
50,000,000
1,000
Coupon rate
Tax rate
6.50%
35%
Year bond is called

Spread above Treasury
Treasury rate at call
Treasury rate at call
7
0.40%
4.80%
8.20%
Output area:
2) Price of coupon bond

# of coupon bonds needed
1,000
50,000
Price of zero coupon bond

# of zeroes needed
278.23
179,707
3) Repayment of coupon bonds
50,000,000
Repayment of zeroes
179,707,000
4) Year 1 interest payments:

Pretax coupon payment
Aftertax coupon payment
$
$
3,250,000
2,112,500
Value of zero in one year

Zero coupon growth
Zero coupon bond
$
296.60
$
18.37
$ (1,155,707.98)
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
1,121.73
Make whole price
837.53
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
$
$
150,000
5.35
320,000
21%
18%
Blue Ribband Motors Corp.

Bon Voyage Marine, Inc.
Nautilus Marine Engines
Industry average
EPS
1.19 $
1.26
(0.27)
0.73 $
Nautilus EPS w/o write-off
2.07
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
$
$
1,605,000.00
39.88%
60.12%
12.63%
720,807.48
13,413,286.96
44.71
1.51
28.98%
71.02%
7.81%
Total dividends
720,807.48
DPS
0.19
0.55
0.57
0.44
2
3
4
5
6
$
$
$
$
$
811,817.84
914,319.33
1,029,762.82
1,159,782.41
1,250,384.00
Stock value in Year 5

Total stock value today
$
$
17,395,308.29
11,655,749.48
Value per share
38.85
3) Industry PE
12.00
Ragan PE (original assumption)
8.36
Ragan PE (revised assumption)
7.26
Stock price implied by

industry PE
4) Total earnings
Cash cow value
Percentage not attributable to
growth opportunities
Percentage attributable to
growth opportunities
5) ROE
64.19
1,605,000.00
10,700,000.00
91.80%
8.20%
12.99%
Stock price
$
16.32
13.94
23.97
$
18.08
ROE
10.00%
12.00%
N/A
11.00%
R
12.00%
17.00%
16.00%
15.00%
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
Company stock expected return
Company stock standard deviation
10-year annual return

9.18%
14.12%
8.58%
6.45%
3.20%
16.00%
65.00%
Output area:
Bledsoe S&P 500 Index Fund

Bledsoe Small-Cap Fund
Bledsoe Bond Fund
Company stock
0.2927
0.4345
0.2259
0.3299
0.1969
Standard deviation
20.43%
25.13%
23.82%
9.85%
Chapter 11
A Job at East Coast Yachts, Part 2
Input area:

Bledsoe Bond Fund
Risk-free rate
10-year annual return

8.58%
6.45%
3.20%
Correlation
0.15
Output area:
Weight of stock fund

0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Dominant portfolio:
Weight of stock fund
Weight of bond fund
Standard deviation
Expected return
Minumum variance portfolio:
Weight of large cap stock fund
Weight of bond fund
Expected return
Variance
Portfolio E(R)
6.45%
6.66%
6.88%
7.09%
7.30%
7.52%
7.73%
7.94%
8.15%
8.37%
8.58%
20.82%
79.18%
9.85%
6.89%
10.41%
89.59%
6.67%
0.009059
Standard deviation
9.52%
Sharpe optimal portfolio: (Using Solver)

Sharpe ratio
19.76%
0.3751

Weight of bond fund
Expected return
Standard deviation
Sharpe ratio
19.76%
80.24%
6.87%
9.79%
0.3751
Investment Opportunity Set

10.00%
8.00%
6.00%
Portfolio Expected Return
4.00%
2.00%
0.00%
5.00% 10.00%15.00%20.00%25.00
Portfolio Standard Deviation
Standard deviation
23.82%
9.85%
Portfolio standard
deviation
9.8500%
9.5182%
9.8006%
10.6484%
11.9417%
13.5536%
15.3843%
17.3648%
19.4493%
21.6077%
23.8200%
nt Opportunity Set
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
5.00% 10.00%15.00%20.00%25.00%
Portfolio Standard Deviation
Microsoft Excel 12.0 Answer Report

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

Cell
Name
$D$46 Sharpe ratio Portfolio E(R)
Original Value Final Value

0.266304
0.317133
Adjustable Cells
Cell
Name
$D$45 Weight of large cap stock fund Portfolio E(R)

0.00%
22.54%
Constraints
NONE
Chapter 12
The Fama-French Multi-Factor Model and Mutual Fund Returns
Input area:
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
200809
200810
200811
200812
200901
200902
Mkt-RF
SMB
HML
-0.44
-0.59
2.09
1.53
3.3
1.95
0.68
1.5
-1.78
0.87
3.55
3.48
-1.87
-3.57
0.75
3.77
2.26
-5.27
-0.7
-6.44
-2.33
-1.21
4.94
2.22
-8.03
-1.47
0.99
-9.96
-18.54
-8.55
2.06
-7.75
-10.12
-0.47
-3.91
0.79
-1.19
1.68
0.7
-0.9
0.04
1.39
-0.19
-2.11
-0.07
0.65
-2.71
-0.13
-2.47
0.08
-2.74
0.06
-0.76
-0.54
0.85
-1.53
2.87
1.08
3.71
3.76
-0.24
-2.12
-3.62
4.04
-0.91
-0.41
1.48
3.28
-1.72
-0.45
0.48
0.46
2.55
-0.09
0.31
0.32
-0.96
-0.08
-1.05
-2.97
-2.35
-2.09
-1.98
-0.99
-0.07
3.05
0
0.19
0.07
-0.31
-1.05
3.61
1.46
4.48
-3.13
-4.93
-1.28
-9.93
-6.73
FMAGX
RF Adj Close
$ 71.68
0.4 $ 71.15
0.4 $ 68.92
0.42 $ 70.58
0.41 $ 71.37
0.41 $ 73.46
0.42 $ 75.36
0.4 $ 74.96
0.44 $ 77.11
0.38 $ 75.84
0.43 $ 76.47
0.44 $ 80.15
0.41 $ 83.41
0.4 $ 83.06
0.4 $ 81.55
0.42 $ 82.49
0.32 $ 87.61
0.32 $ 92.28
0.34 $ 88.78
0.27 $ 89.09
0.21 $ 81.11
0.13 $ 79.81
0.17 $ 78.07
0.17 $ 83.16
0.17 $ 85.70
0.17 $ 78.53
0.15 $ 75.44
0.12 $ 75.38
0.15 $ 61.83
0.08 $ 48.48
0.02 $ 42.98
0.09 $ 45.09
0 $ 41.69
0.01 $ 38.52
FLPSX
Adj Close
$
31.35
$
30.97
$
30.60
$
31.17
$
31.63
$
32.73
$
34.10
$
34.72
$
35.14
$
35.05
$
35.62
$
36.79
$
38.23
$
37.88
$
36.19
$
35.93
$
36.88
$
37.98
$
35.60
$
35.77
$
33.99
$
33.65
$
33.04
$
34.72
$
35.94
$
32.80
$
32.34
$
32.68
$
28.82
$
23.05
$
21.03
$
22.84
$
21.38
$
19.41
200903
200904
200905
200906
200907
200908
200909
200910
200911
200912
201001
201002
201003
201004
201005
201006
201007
201008
201009
201010
201011
201012
201101
201102
201103
201104
201105
8.76
11.04
6.73
-0.28
8.24
3.18
4.52
-2.84
5.74
2.92
-3.71
3.54
6.44
2.02
-8
-5.21
7.24
-4.4
9.24
3.89
0.58
6.77
2.02
3.85
0.29
2.82
-1.47
0.74
5.14
-2.61
2.64
2.48
-0.58
2.36
-4.27
-2.83
5.88
0.43
1.41
1.59
5
-0.03
-2.05
-0.08
-2.92
3.97
0.91
3.72
0.8
-2.42
1.78
2.71
-0.19
-0.39
2.55
5.74
0.44
-2.48
4.83
7.62
1.5
-4.38
0.12
0.74
0.57
2.75
2.02
3.14
-2.36
-4.28
0.13
-1.71
-3.14
-2.14
-0.61
3.53
0.94
1.37
-1.31
-2.35
-2.27
0.01
0.01
0
0
0.01
0.01
0
0
0
0
0
0
0
0
0.01
0.01
0.01
0.01
0.01
0.01
0.01
0.01
0
0.01
0
0
0
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
43.88
49.88
52.99
52.26
56.84
58.07
61.15
57.83
60.99
63.64
60.86
62.69
66.84
67.85
62.35
58.32
61.27
57.64
63.89
66.20
67.10
71.57
72.73
75.75
75.45
77.35
75.63
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
21.04
24.09
25.61
25.59
27.86
29.08
30.20
29.34
30.48
31.77
31.25
32.35
34.42
35.30
32.57
31.02
32.92
31.58
34.60
35.93
36.00
38.38
38.89
40.28
40.76
42.57
42.08
Output area:
200605
200606
200607
200608
200609
200610
200611
200612
200701
Mkt-RF
-0.0044
-0.0059
0.0209
0.0153
0.0330
0.0195
0.0068
0.0150
-0.0178
Risk premium for mutual funds

SMB
HML FMAGX FLPSX
BSCFX
-0.0047 0.0148 -0.0114
-0.0161
-0.0176
-0.0391 0.0328 -0.0353
-0.0159
-0.0682
0.0079 -0.0172
0.0199
0.0144
0.0181
-0.0119 -0.0045
0.0071
0.0107
0.0289
0.0168 0.0048
0.0252
0.0307
0.0536
0.0070 0.0046
0.0217
0.0377
0.0245
-0.0090 0.0255 -0.0093
0.0142
0.0055
0.0004 -0.0009
0.0243
0.0077
0.0345
0.0139 0.0031 -0.0203
-0.0064
-0.0110
200702
200703
200704
200705
200706
200707
200708
200709
200710
200711
200712
200801
200802
200803
200804
200805
200806
200807
200808
200809
200810
200811
200812
200901
200902
200903
200904
200905
200906
200907
200908
200909
200910
200911
200912
201001
201002
201003
201004
201005
201006
201007
201008
0.0087
0.0355
0.0348
-0.0187
-0.0357
0.0075
0.0377
0.0226
-0.0527
-0.0070
-0.0644
-0.0233
-0.0121
0.0494
0.0222
-0.0803
-0.0147
0.0099
-0.0996
-0.1854
-0.0855
0.0206
-0.0775
-0.1012
0.0876
0.1104
0.0673
-0.0028
0.0824
0.0318
0.0452
-0.0284
0.0574
0.0292
-0.0371
0.0354
0.0644
0.0202
-0.0800
-0.0521
0.0724
-0.0440
0.0924
-0.0019
-0.0211
-0.0007
0.0065
-0.0271
-0.0013
-0.0247
0.0008
-0.0274
0.0006
-0.0076
-0.0054
0.0085
-0.0153
0.0287
0.0108
0.0371
0.0376
-0.0024
-0.0212
-0.0362
0.0404
-0.0091
-0.0041
0.0074
0.0514
-0.0261
0.0264
0.0248
-0.0058
0.0236
-0.0427
-0.0283
0.0588
0.0043
0.0141
0.0159
0.0500
-0.0003
-0.0205
-0.0008
-0.0292
0.0397
0.0032
-0.0096
-0.0008
-0.0105
-0.0297
-0.0235
-0.0209
-0.0198
-0.0099
-0.0007
0.0305
0.0000
0.0019
0.0007
-0.0031
-0.0105
0.0361
0.0146
0.0448
-0.0313
-0.0493
-0.0128
-0.0993
-0.0673
0.0255
0.0574
0.0044
-0.0248
0.0483
0.0762
0.0150
-0.0438
0.0012
0.0074
0.0057
0.0275
0.0202
0.0314
-0.0236
-0.0428
0.0013
-0.0171
-0.0314
0.0040
0.0437
0.0366
-0.0082
-0.0222
0.0073
0.0589
0.0501
-0.0413
0.0008
-0.0917
-0.0173
-0.0235
0.0635
0.0288
-0.0854
-0.0408
-0.0020
-0.1813
-0.2167
-0.1136
0.0482
-0.0754
-0.0761
0.1390
0.1366
0.0623
-0.0138
0.0875
0.0215
0.0530
-0.0543
0.0546
0.0434
-0.0437
0.0301
0.0662
0.0151
-0.0812
-0.0647
0.0505
-0.0593
0.1083
0.0120
0.0284
0.0350
-0.0132
-0.0486
-0.0114
0.0232
0.0266
-0.0661
0.0021
-0.0519
-0.0113
-0.0198
0.0491
0.0334
-0.0891
-0.0155
0.0093
-0.1196
-0.2010
-0.0878
0.0852
-0.0639
-0.0922
0.0839
0.1449
0.0631
-0.0008
0.0886
0.0437
0.0385
-0.0285
0.0389
0.0423
-0.0164
0.0352
0.0640
0.0256
-0.0774
-0.0477
0.0612
-0.0408
0.0955
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
-0.1042
-0.1949
-0.1070
0.0570
-0.0709
-0.0802
0.0804
0.1406
0.0347
0.0193
0.0517
0.0269
0.0509
-0.0317
0.0334
0.0718
-0.0317
0.0252
0.0617
0.0552
-0.0641
-0.0604
0.0593
-0.0542
0.1069
201009 0.0389 0.0091 -0.0214

201010 0.0058 0.0372 -0.0061
201011 0.0677 0.0080 0.0353
201012 0.0202 -0.0242 0.0094
201101 0.0385 0.0178 0.0137
201102 0.0029 0.0271 -0.0131
201103 0.0282 -0.0019 -0.0235
201104 -0.0147 -0.0039 -0.0227
0.0361
0.0135
0.0665
0.0162
0.0414
-0.0040
0.0252
-0.0222
0.0383
0.0018
0.0660
0.0133
0.0356
0.0119
0.0444
-0.0115
0.0300
0.0431
0.0587
0.0227
0.0542
0.0207
0.0290
-0.0074
Fund Returns
BSCFX
Adj Close
$ 19.91
$ 19.64
$ 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
$ 13.23
$ 12.17
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
13.15
15.00
15.52
15.82
16.64
17.09
17.96
17.39
17.97
19.26
18.65
19.12
20.30
21.42
20.05
18.84
19.96
18.88
20.90
21.53
22.46
23.78
24.32
25.64
26.17
26.93
26.73
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.97508
R Square
0.95078
Adjusted R Square 0.94815
Standard Error
0.01485
Observations
60
ANOVA
df
Regression
Residual
Total
Intercept
Mkt-RF
SMB
HML
3
56
59
SS
###
###
###
MS
###
###
F Significance F
### 1E-036
Coefficients
Standard Errort Stat
P-value Lower 95%
Upper 95%
Lower 95.0%
-0.0037 0.0019 -1.9003
0.0625 -0.0076 0.0002 -0.0076
1.2100 0.0413 29.2713
0.0000 1.1272 1.2928 1.1272
0.1588 0.0902 1.7615
0.0836 -0.0218 0.3395 -0.0218
-0.3039 0.0746 -4.0745
0.0001 -0.4534 -0.1545 -0.4534
Upper 95.0%
0.0002
1.2928
0.3395
-0.1545
SUMMARY OUTPUT
Multiple R
0.97840
R Square
0.95727
Adjusted R Square
0.95498
Standard Error
0.01222
Observations
60
ANOVA
df
Regression
Residual
Total
Intercept
Mkt-RF
SMB
HML
3
56
59
SS
0.187284
0.008359
0.195643
MS
F
Significance F
0.062428 418.219483 2.71E-038
0.000149
Coefficients
Standard Error t Stat
0.00062
0.00160
0.38863
1.00241
0.03401 29.47540
0.26928
0.07418
3.62993
-0.05479
0.06137 -0.89285
P-value Lower 95%Upper 95%

Lower 95.0%
Upper 95.0%
0.69902 -0.00258 0.00383 -0.00258 0.00383
0.00000 0.93428 1.07054 0.93428 1.07054
0.00062 0.12067 0.41789 0.12067 0.41789
0.37576 -0.17772 0.06814 -0.17772 0.06814
Upper 95.0%
SUMMARY OUTPUT
Multiple R
0.97260
R Square
0.94595
Adjusted R Square
0.94306
Standard Error
0.01405
Observations
60
ANOVA
df
Regression
Residual
Total
Intercept
Mkt-RF
SMB
HML
3
56
59
SS
0.19356
0.01106
0.20462
MS
F
Significance F
0.06452 326.71151 1.94E-035
0.00020
Coefficients
Standard Error t Stat
-0.00053
0.00184 -0.28720
0.97967
0.03912 25.04468
0.62095
0.08533
7.27739
-0.22366
0.07058 -3.16876
P-value Lower 95%Upper 95%

Lower 95.0%
Upper 95.0%
0.77502 -0.00422 0.00316 -0.00422 0.00316
0.00000 0.90131 1.05803 0.90131 1.05803
0.00000 0.45002 0.79188 0.45002 0.79188
0.00248 -0.36506 -0.08227 -0.36506 -0.08227
Upper 95.0%
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.
9.97%
Beta
1.87
1.41
1.19
1.92
1.18
1.28
Electronics for Imaging

Palm, Inc.
Digi International
Agilysis, Inc.
Rackable Systems, Inc.
SeaChange International
MIPS Technologies
Silicon Graphics
Cray Inc.
Industry Average
1.40
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
600
500
300
400
1,800
$
$
$
$
4.1497
21.7280
5.9497
23.3526
WACC using book value
8.07%
WACC using market value
9.60%
Percent
of total
0.33
0.28
0.17
0.22
$
1.00
billion
billion
million
million
Quoted
Market value Percent Yield to
Book
Market
price
(millions)
of total Maturity values values
94.367 $
566.202
0.35
6.221% 2.07% 2.17%
92.106
460.530
0.28
6.811% 1.89% 1.93%
91.672
275.016
0.17
7.949% 1.32% 1.35%
80.725
322.900
0.20
8.254% 1.83% 1.64%
$
1,624.65
1.00
7.12% 7.08%
Chapter 16
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
$
$
$
12,000,000
48.50
45,000,000
11,000,000
11.50%
7.00%
70%
40%
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
c) Cash
Old assets
NPV of project
Total assets
Total
New shares outstanding
$
$
582,000,000
582,000,000
$
$
6,600,000
12,391,304
582,000,000
12,391,304
594,391,304
$
$
49.53
908,492
45,000,000
582,000,000
12,391,304
639,391,304
12,908,492
New share price
49.53
d) PV of the project
57,391,304
Old assets
PV of project
Total assets
$
$
582,000,000
57,391,304
639,391,304
657,391,304
b) Value unlevered
Tax shield
Total assets
$
$
639,391,304
18,000,000
657,391,304
New stock price
51.03
4. a) Market value of company
Equity
Total Debt & Equity
$
$
582,000,000
582,000,000
Equity
Total Debt & Equity
$
$
594,391,304
594,391,304
Equity
Total Debt & Equity
$
$
639,391,304
639,391,304
Equity
Total Debt & Equity
$
$
639,391,304
639,391,304
Debt
Equity
Total Debt & Equity
45,000,000
612,391,304
657,391,304
Chapter 17
McKenzie Corporation's Capital Budgeting
Input Area:
Recession
Normal
Expansion
Face value of debt
Cost of expansion
Probability
0.30 $
0.50 $
0.20 $
Without
expansion
25,000,000 $
30,000,000 $
48,000,000 $
$
$
29,000,000
5,700,000
$
$
32,100,000
38,000,000
200,000
With
expansion
27,000,000
37,000,000
57,000,000
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
Expected value of equity
$
$
$
Without
expansion
25,000,000 $
29,000,000 $
29,000,000 $
With
expansion
27,000,000
29,000,000
29,000,000
27,800,000 $
28,400,000
Without
expansion
With
expansion
$
$
$
$
1,000,000 $
19,000,000 $
8,000,000
28,000,000
4,300,000 $
9,600,000
Bondholder gain with expansion
600,000
Stockholder gain with expansion
5,300,000
Stockholder NPV
(400,000)
Chapter 18
The Leveraged Buyout of Cheek Products, Inc.
Input area:
2012
2013
2,749.00 $ 3,083.00 $
731.00
959.00
485.00
516.00
1,533.00 $ 1,608.00 $
613.20
643.20
919.80 $
964.80 $
2014
3,322.00
1,009.00
537.00
1,776.00
710.40
1,065.60
Sales
Costs
Depreciation
EBT
Tax
Net income
Capital expenditures
Change in NWC
Asset sales
$
$
$
279 $
(122) $
1,419 $
242 $
(186) $
1,028
304
101
Interest payments
1,927 $
1,859 $
2,592
$
$
Terminal growth rate

Terminal D/E
Return on assets
Pretax cost of debt
Pretax debt after Year 5
Tax rate
Shares outstanding (million)
3.50%
25.00%
14.00%
12.50%
8.00%
40.00%
425
Output area:
Unlevered cash flows
2,666.80 $ 2,452.80 $ 1,197.60
PV unlevered CF
6,406.71
Terminal value of future

unlevered CF in Year 5
$ 12,459.43
Value today of terminal

value
6,471.04
Interest tax shield

PV of interest tax shield
$
$
Levered equity return

WACC
770.80 $
3,211.89
15.20%
13.36%
Terminal value of company
$ 13,268.15
Terminal value of tax shields
808.73
Value of terminal tax shields

today
448.79
PV unlevered CF
PV tax shields
Value of company
$ 12,877.75
$ 3,660.68
$ 16,538.42
Share price to offer
38.91
743.60 $ 1,036.80
2015
2016
$ 3,400.00 $ 3,559.00
1,091.00
1,149.00
564.00
575.00
$ 1,745.00 $ 1,835.00
698.00
734.00
$ 1,047.00 $ 1,101.00
$
$
308 $
95 $
304
108
2,526 $
2,614
$ 1,208.00 $ 1,264.00
$ 1,010.40 $ 1,045.60
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%
1,800,000
15,000
20,000
100,000
8,500
525,000
75,000
325,000
85,000,000
Underwriter fees
5,950,000
Total fees excluding underwriter fees
2,543,500
Total fees
8,493,500
Net amount raised
79,050,000
Output area:
Fee as a percentage of funds raised
10.74%
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
$
$
$
$
$
4,000,000
0.3333
0.4445
0.1481
0.0741
480,000
1,040,000
240,000
11%
35%
1,840,000
1,600,000
Output area:
1) Aftertax cost of debt
7.15%
Year 0
4,000,000
Saved purchase
Lost salvage value
Lost depreciation tax shield
Security deposit
Lease payment
Tax on lease payment
Cash flow from leasing
NAL
35,446.43
2) Book value in Year 2
888,800
Saved purchase
Year 0
4,000,000
Year 1
Year 2
(466,620) $
(622,300)
(240,000)
(1,040,000)
(1,040,000)
364,000
364,000
3,084,000 $ (1,142,620) $
(1,040,000)
364,000
(1,298,300)
Year 1
Year 2
Lost salvage value

Lost depreciation tax shield
Lease payment
Tax on lease payment
Cash flow from leasing
NAL
(466,479.28)
PV of lease payments
3,497,657.66
(466,620)
(1,840,000)
(1,840,000)
644,000
644,000
2,804,000 $ (1,662,620) $
(1,351,080)
(622,300)
(1,973,380)
Year 3
Year 4
$
(207,340)
(1,040,000)
364,000
(883,340) $
(312,000)
(103,740)
240,000
(175,740)
Chapter 22
Clissold Industries Options
Input Area:
Current stock price $

Exercise price
$
Expiration (months)
Risk-free rate
Standard deviation
68
80
6
4%
57.86%
Output Area:
d1
(0.1438)
d2
(0.5529)
N(d1)
0.4428
N(d2)
0.2902
Call
7.36

Target Cell (Value Of)

Cell
Name
$D$22 Call

$
14.23 $
18.73
Adjustable Cells
Cell
Name
$D$11 Standard deviation

65.00%
90.35%
Constraints
NONE


Cell
Name
$D$22 Call

$
16.81 $
15.69
Adjustable Cells
Cell
Name

90.35%
84.24%
Constraints
NONE


Cell
Name
$D$22 Call

$
13.95 $
11.06
Adjustable Cells
Cell
Name

84.24%
69.05%
Constraints
NONE


Cell
Name
$D$22 Call

$
9.50 $
7.36
Adjustable Cells
Cell
Name

69.05%
57.86%
Constraints
NONE
Chapter 23
Exotic Cuisine Employee Stock Options
Input Area:
Current stock price

Exercise price
Expiration (years)
Risk-free rate
Standard deviation
$
$
38.15
50
10
4.40%
60.00%
Output Area:
d1
1.0380
d2
(0.8593)
N(d1)
0.8504
N(d2)
0.1951
Call
26.16
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
$
$
17.50
1.75
45.00
20
5%
680.56
8%
Output area:
Stock price
30.63
Intrinsic bond value
703.11
Floor value
703.11
Conversion ratio
22.22
Conversion premium
Option value
46.94%
$
296.89
Chapter 25
Williamson Mortgage, Inc.
Input area:
Mortgage value
Years
Interest rate
4) Interest rate
5) Interest rate
500,000
25
5.50%
6.20%
4.60%
Output area:
1) Mortgage payment
3,070.44
4) Mortgage value
$ 467,639.54
5) Mortgage value
$ 546,804.59
Chapter 26
Keafer Manufacturing Working Capital Management
3
4
Input Area:
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
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
675,000
10%
57
50%
53
25%
185,000
390,000
210,000
135,000
1.2%
0.5%
-
Q1
1,102,000
$
$
$
$
Growth rate in sales
21.00%
25
26
27
Output Area:
28
29
30
31
Sales next year

Sales following year
$
$
1,333,420.00
1,613,438.20
32
33
34
35
36
37
38
39
40
41
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
Quarterly cash flow

Q1
607,500.00
488,920.67
(392,618.11)
(283,792.06)
(333,355.00)
(185,000.00)
A
42
43
Net cash flow
(98,344.50)
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)
Q1:
Q2:
Q3:
Q4:
$
$
$
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
$
$
Excess funds at start of quarter of

Net cash cost
Q1
Q2
Q3
Q4
Cash generated by short-term financing
Cash Balance
Q1
210,000.00
(98,344.50)
111,655.50
135,000.00
(23,344.50)
Short-term Financial Plan
135,000.00
(98,344.50)
375.00
97,969.50
135,000.00
(135,000.00)
75,000.00
75,000.00
$75,000.00
$75,000.00
$209,620.06
$3,662.77
375.00
375.00
1,048.10
18.31
1,816.41
nagement 2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
Q2
1,141,000 $
Q3
1,125,000 $
Q4
1,063,000
1,380,610.00 $
1,361,250.00 $
1,286,230.00
Q3
874,386.33 $
499,125.00
(400,812.50)
(264,391.72)
(340,312.50)
(185,000.00)
(390,000.00)
Q4
862,125.00
471,617.67
(378,723.28)
(331,651.19)
(321,557.50)
(185,000.00)
25
26
27
28
29
30
31
32
33cash flow
Quarterly
34
35
36
37
38
39
40
41
Q2
844,499.33 $
506,223.67
(406,512.94)
(279,812.50)
(345,152.50)
(185,000.00)
E
42
43
134,245.06 $
(207,005.39) $
116,810.70
E
44
Cash Balance
45
Q2
46 $
111,655.50
47
134,245.06
48
$
245,900.56
49
135,000.00
50 $
110,900.56
51
52
ort-term Financial
Plan
53
$
135,000.00
54
134,245.06
55
(134,620.06)
56
375.00
57
58
59
60
61
$
135,000.00
62
(135,000.00)
63 $
64
65
$
75,000.00
66
209,620.06
67
68 $
69
70
earns
71
earns
72
earns
73
earns
74
75
76
77
78
79
80
81
$
$
$
$
$
$
Q3
245,900.56 $
(207,005.39)
38,895.17 $
135,000.00
(96,104.83) $
Q4
38,895.17
116,810.70
155,705.87
135,000.00
20,705.87
135,000.00 $
(207,005.39)
1,048.10
205,957.29
135,000.00 $
(135,000.00)
- $
135,000.00
116,810.70
(116,829.02)
18.31
135,000.00
(135,000.00)
-
209,620.06 $
3,662.77
- $
3,662.77
120,491.78
-
$375.00
$375.00
$1,048.10
$18.31
in income.
in income.
in income.
in income.

Result: Solver found a solution. All Constraints and optimality conditions are satisfied.
Solver Engine
Engine: GRG Nonlinear
Solution Time: 0.031 Seconds.
Iterations: 2 Subproblems: 0
Solver Options
Max Time 100 sec, Iterations 100, Precision 0.000001
Convergence 0.0001, Population Size 100, Random Seed 0, Derivatives Forward, Require Bounds
Max Subproblems Unlimited, Max Integer Sols Unlimited, Integer Tolerance 5%, Solve Without Integer Constraints
Objective Cell (Value Of)
Cell
Name
$F$68 Ending short-term debt Q3

$
53,265.82 $
-
Variable Cells
Cell
Name
$D$24 Growth rate in sales Q1
Original Value Final Value Integer

11.00%
21.00% Contin
Constraints
Cell
Name
$F$68 Ending short-term debt Q3
Cell Value
$
Formula
$F$68=0
Status Slack
Binding
0
nteger Constraints
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
185,000
0.068%
0.20%
14
0.075%
200
Output:
1. FVA
$10,385,104.15
2. FVA
$ 10,391,608.36
The company should go ahead with the plan.
3. ACH transfer cost
315.67
Chapter 28
Credit Policy at Braam Industries
Input Area:
Current policy
Option 1
Option 2
Option 3
$
$
$
$
Variable costs
Interest rate
Sales
116,000,000
130,000,000
129,000,000
132,000,000
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
$
$
$
$
317,808.22
143,013.70
6,673.97
5,084.93
0.6085%
NPV
$ 26,650,947.25
Option 1:
Daily sales
Interest rate
$
$
$
$
356,164.38
160,273.97
9,260.27
8,547.95
0.6567%
NPV
$ 26,958,531.53
Default rate
2.10%
2.60%
2.20%
2.50%
Option 2:
Daily sales
Interest rate
$
$
$
$
353,424.66
159,041.10
7,775.34
6,715.07
0.8175%
NPV
$ 21,846,461.54
Option 3:
Daily sales
Interest rate
$
$
$
$
361,643.84
162,739.73
9,041.10
7,594.52
0.7853%
NPV
$ 23,047,081.08
Administrative costs
1.60%
2.40%
1.90%
2.10%
Receivables period
38
41
51
49
Chapter 29
The Birdie Golf-Hybrid Golf Merger
Input Area:
Cash paid
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
Loan to buy company
Dividends from Hybrid today
Current target debt-equity ratio
New target debt-equity ratio
Year 2 tax-loss carryforward
Year 3 tax-loss carryforward
Terminal value of Hybrid in five years
Debt level in five years
Stock price of acquirer
Shares outstanding in acquirer
Shares outstanding in target
Risk-free rate
$
$
$
$
$
$
$
$
$
$
$
$
$
$
352,000,000
2012
512,000,000
359,200,000
48,000,000
51,200,000
53,600,000
12,160,000
41,440,000
16,576,000
24,864,000
2013
576,000,000
403,200,000
51,200,000
57,600,000
64,000,000
14,080,000
49,920,000
19,968,000
29,952,000
12,800,000 $
9,600,000
22,400,000 $
16,000,000
16,000,000
32,000,000
22,400,000 $
22,400,000 $
10,240,000
21,760,000
32,000,000
40%
71,000,000
96,000,000
0.5000
1.0000
16,000,000
16,000,000
576,000,000
192,000,000
94.00
11,600,000
5,200,000
6%
$
$
Expected return on market

Company acquirer WACC
Cost of debt for each company
Current beta for Hydrid equity
Price agreed by Hybrid shareholders
13%
11%
8%
1.30
68.75
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
(352,000,000)
96,000,000 $
24,864,000
(256,000,000) $
24,864,000
$
$
(352,000,000)
96,000,000 $
21,227,092
(256,000,000) $
21,227,092
1) NPV
25,512,330.96
2) Highest price to offer
377,512,330.96
67.69
Price per share offered
Year 1
Highest share price to offer

3) New share price
Exchange ratio
4) Highest exchange ratio
72.60
96.20
0.7147
0.7314
$
$
$
$
$
$
$
2014
640,000,000
448,000,000
52,800,000
64,000,000
75,200,000
15,360,000
59,840,000
23,936,000
35,904,000
2016
800,000,000
564,000,000
53,600,000
77,600,000
104,800,000
17,280,000
87,520,000
35,008,000
52,512,000
16,000,000 $
11,520,000
27,520,000 $
19,200,000 $
76,800,000
96,000,000 $
19,200,000
4,480,000
23,680,000
10,240,000 $
17,280,000
27,520,000 $
9,600,000 $
17,280,000
26,880,000 $
7,680,000
16,000,000
23,680,000
$
$
$
2015
720,000,000
505,600,000
53,120,000
72,320,000
88,960,000
16,000,000
72,960,000
29,184,000
43,776,000
$
$
Year 2
$
8,192,000 $
16,000,000
Year 3
18,624,000 $
16,000,000
Year 4
Year 5
26,496,000 $
36,512,000
24,192,000 $
34,624,000 $
26,496,000 $
576,000,000
(192,000,000)
804,512,000
5,970,751 $
13,717,421
11,588,613 $
12,701,316
14,075,321 $
16,558,962
14,075,321 $
316,344,830
(130,671,974)
202,231,818
19,688,172 $
24,289,929 $
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%
1.34
80%
1.25
Sales less commission

Dollar value of sales
7,600,000
10,184,000
Total sales
Production costs
$
$
10,720,000
8,576,000
Profit at current exchange rate
1,608,000
$
$
9,500,000
8,576,000
Profit at new exchange rate
924,000
Breakeven exchange rate ($/)
1.1284
Output Area:
3) At revised exchange rate:

Dollar value of sales
Production costs

5.manual Case

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Corporate Finance

Ross, Westerfield, and Jaffe

Balance Sheet (in $ thousan

Acquisition of fixed assets

Income Statement (in $ thousands)

Operating cash flow

Net capital spending

Net working capital cash flow

Cash flow from assets

Cash flow to creditors

Cash flow to stockholders

Statement of cash flows

Balance Sheet (in $ thousands)

Total liabilities and

5) EFN if minimum FA purchase is

Depreciation as a percentage of fixed assets

Liabilities & Equity

Liabilities & Equity

Liabilities & Equity

Liabilities & Equity

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

Book value of equipment

Discounted cash flow

Operating cash flow

Nominal required return

Real required return

Next thinning will occur in

40 years, and will reoccur at this sam

Aftertax cost of convservation

Sale preparation & admin

Next thinning will occur in

Next thinning will occur in

50 years, and will reoccur at this sam

The effective real interest rate for the

Next thinning will occur in

nd will reoccur at this same interval.

nd will reoccur at this same interval.

nd will reoccur at this same interval.

nd will reoccur at this same interval.

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

in the form of the interest tax shield of debt.

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