Sheet 2 (Unit 2) is where I have started my work.

Ch. 4

Problem 2a-c

Calculating Future Values:Compute the future value of $3,200 compounded annually for a.10 years at 6 percent b.10 years at 8 percent c. 20 years at 6 percent

Problem 3

Present Value: Compute the present value

Years 12 Interest Rate 7% Future Value $15,451

Years 8 Interest Rate 9% Future Value 51,557

Years 19 Interest Rate 14% Future Value 886,073

Years 24 Interest Rate 16% Future Value 550,164

Problem 4

Calculating Interest Rates: Solve for the Unknown Interest Rate

Present Value $217 Years 3 Interest Rate ____ Future Value $307

$432 10 years Interest Rate ___ Future Value $896

$41,000 13 years Interest Rate ___ Future Value $162,181

$54,382 26 years Interest Rate ___ Future Value $483,500

Problem 5

Calculating the Number of Periods

Present Value $625 Years ___ Interest Rate 9% Future Value $1,284

Present Value $810 Years ____ Interest Rate 11% Future Value 4,341

Present Value 18,400 Years ___ Interest Rate 7% Future Value 402,662

Present Value 21,500 Years ____ Interest Rate 10% Future Value 173,439

Problem 11

Present Value and Multiple Cash Flow

Colony Co. has identified an investment project with the following cash flows. If the discount rate is 5 percent, what is the present value of these cash flows? What is the present value at 13 percent? At 18 percent?

Year 1 Cash Flow 960

Year 2 Cash Flow 840

Year 3 Cash Flow 1935

Year 4 Cash Flow 1350

Ch 5.

Problem 2a

Valuing Bonds: Microhard has issued a bond with the following characteristics:

Par $1000

Time to Maturity 25 years

Coupon rate 7%

Semiannual payments

Calculate 7%

Problem 3 Bond Yields: Watters Umbrella Corp. issued 15 year bonds two years ago at a coupon rate of 6.8%. The bonds make semiannual payments. If these bonds currently sell for 105% of par value, what is the YTM?

Ch. 6

2. Stock Values: The next dividend payment by ZYX, Inc., will be $1.99 per share. The dividends are anticipated to maintain a growth rate of 4.5% forever. If ZYX stock currently sells for $31 per share, what is the required return?

4. Stock Values: Mickelson Corporation will pay a $2.65 per share dividend next year. The company pledges to increase is dividend by 4.75% per year indefinitely. If you require a return of 11% on your investment, how much will you pay for the company's stock today?

UNIT 1: TEXTBOOK PROBLEMS CHAPTER 2: PROBLEM 1 Current Assets Net Fixed Assets Current Liabilities Long-Term Debt $7,300 $26,200 $5,700 $12,900 Shareholder Equity = Net Working Capital = $14,900 $1,600 CHAPTER 2: PROBLEM 2 Sales Costs Depreciation Expense EBIT Interest Expense EBT Taxes @ 35% Net Income = Cash Dividends Addition to Retained Earnings = Tax Rate = Income Statement $675,300 $297,800 $45,100 $332,400 $20,700 $311,700 $109,095 $202,605 $62,000 $140,605 35% CHAPTER 2: PROBLEM 4 Taxable Income $315,000 Table 2.3 Taxable Income Taxable Income (cont) Tax Rate 0 50,001 75,001 100,001 335,001 10,000,001 15,000,001 18,333,334 50,000 75,000 100,000 335,000 10,000,000 15,000,000 18,333,333 + 15% 25% 34% 39% 34% 35% 38% 35% Income Taxes = Average Tax Rate = Marginal Tax Rate = $106,100 33.68% 39% CHAPTER 2: PROBLEM 5 Sales $29,200 (Note: No formula needed. Just inpu Costs Depreciation Expense EBIT Interest Expense EBT Taxes @ 40% Net Income Tax Rate $10,400 $1,800 $17,000 $1,050 $15,950 $6,380 $9,570 40% Operating Cash Flow = $12,420 CHAPTER 3: PROBLEM 2 Debt/Equity Ratio Return on Assets Total Equity 0.65 9.80% $850,000 Equity Multiplier = Return on Equity = Net Income = 1.65 16.17% $137,445 CHAPTER 3: PROBLEM 6 ROE Payout Ratio Retention Ratio Sustainable Growth Rate = 16% 25% 75.00% 12.00% (Note: You must calculate the retent te: No formula needed. Just input the correct rate from the Tax Rate column) te: You must calculate the retention ratio first then the sustainable growth rate) UNIT 2: TEXTBOOK PROBLEMS CHAPTER 4: PROBLEM 2 (a thru c) Present Value Interest Rate Number of Years Future Value = A. 3,200 6% 10 $5,731 B. 3,200 8% 10 $6,909 C. 3,200 6% 20 $10,263 A. 15,451 7% 12 $6,860 B. 51,557 9% 8 $25,875 C. 886,073 14% 19 $73,498 A. 217 307 3 12.26% B. 432 896 10 7.57% C. 41,000 162,181 13 11.16% A. 625 1,284 9% 8.35 B. 810 4,341 11% 16.09 C. 18,400 402,662 7% 45.61 5% $960 $840 $1,935 $1,350 $4,458 13% $960 $840 $1,935 $1,350 $3,676 18% $960 $840 $1,935 $1,350 $3,291 CHAPTER 4: PROBLEM 3 Future Value = Interest Rate Number of Years Present Value = CHAPTER 4: PROBLEM 4 Present Value = Future Value Number of Years Interest Rate CHAPTER 4: PROBLEM 5 Present Value = Future Value Interest Rate Number of Years (or Periods) CHAPTER 4: PROBLEM 11 Discount Rate Year 1: Year 2: Year 3: Year 4: Present Value @ 5%, 13%, and 18% = CHAPTER 5: PROBLEM 2 A. Settlement 1/1/10 (Think of Settlement as the beginning of the duratio Maturity 12/31/15 (Think of Maturity as the end of the duration of the b Rate 10% (Coupon Rate) YTM 10% (Yield to Maturity or Required Rate of Return) Redemption $1,000.00 (Bonds Face Value, Par Value, or Fair Price; Note th Frequency 1 (Coupon payments are semiannual, so you put in a Basis (Always leave it blank) Bond Price 608.16 (The answer. But you need to multiply it by 10 to ge Multiply by 10 6081.60 (Microsoft gives the bond price in 2 digits. You need Settlement Maturity Rate Pr Redemption Frequency Basis: YTM #NAME? (Think of Settlement as the beginning of the duratio (Think of Maturity as the end of the duration of the b (Coupon Rate) (The bonds price per $100 face value) (Bonds Face Value, Par Value, or Fair Price; Note th (Coupon payments are semiannual, so you put in a (Always leave it blank) CHAPTER 5: PROBLEM 3 CHAPTER 6: PROBLEM 2 Dividend Payment Dividend Growth Rate ZYX Stock Price $1.99 4.50% $31 Required Return = 10.92% CHAPTER 6: PROBLEM 4 Dividend Dividend increase per year Required Return (Return on Investment) $2.65 4.75% 11% Stock Price = $42.40 D. 550,164 16% 24 $15,614 D. 54,382 483,500 26 8.77% D. 21,500 173,439 10% 21.91 (Note: Use the built-in NPV formula in Excel) ment as the beginning of the duration of the bond) ity as the end of the duration of the bond) ty or Required Rate of Return) alue, Par Value, or Fair Price; Note that is $100, not $1,000. You make the adjustments by multiplying the answer by 10) ents are semiannual, so you put in a 2. If they are annual, then you input a 1) ut you need to multiply it by 10 to get the actual bond price) s the bond price in 2 digits. You need to multiply it by 10 to get the actual bond price) ment as the beginning of the duration of the bond) ity as the end of the duration of the bond) ce per $100 face value) alue, Par Value, or Fair Price; Note that is $100, not $1,000) ents are semiannual, so you put in a 2. If they are annual, then you input a 1) the answer by 10) UNIT 3: TEXTBOOK PROBLEMS CHAPTER 7: PROBLEM 1b Discount Rate Year 0 Year 1 Year 2 Year 3 NPV = Project A 15% ($14,500) $8,500 $6,800 $2,800 ($125.87) Project B 15% ($9,800) $4,700 $4,200 $4,100 $158.58 (Note: You will choose the project CHAPTER 7: PROBLEM 2 Year 0 1 2 3 4 5 6 7 8 Payback Period = A. $3,200 $825 $825 $825 $825 $825 $825 $825 $825 3.88 B. $4,600 $825 $825 $825 $825 $825 $825 $825 $825 5.58 Year 0 1 2 3 IRR = Project A ($5,200) 1,800 3,200 2,200 17.57% Project B ($3,600) 1,300 2,100 1,800 19.72% Discount Rate Year 0 (Initial Cost) 1 2 3 4 5 6 7 15% C. $7,900 $825 $825 $825 $825 $825 $825 $825 $825 9.58 CHAPTER 7: PROBLEM 8 CHAPTER 7: PROBLEM 9 First find the NPV Now calculate the Profitability Index ($185,000) 62,000 62,000 62,000 62,000 62,000 62,000 62,000 $257,946 1.39 $185,000 (Use the built-in NPV formula in Excel but exc (Use the positive amount of the initial cost in c CHAPTER 8: PROBLEM 1 Cost of Souffle Maker Economic Life # of Souffles produced per year Cost to make each Souffle Price of each Souffle Discount Rate Tax Rate $27,000 6 2,300 $2 $7 14% 34% Step 1: First calculate the Operating Cash Flow $9,120 ($27,000) years Step 2: Place the answer you get for your Operating Cash Flow in the year 1 thru year 6 cells below Year 1 $9,120 Year 2 $9,120 Year 3 $9,120 Year 4 $9,120 Year 5 $9,120 Year 6 $9,120 Step 3: Now find the NPV. Be sure to include the initial cost by using cell C58 as it is negative NPV = $8,465 (You will accept the project if the NPV is positi (Note: You will choose the project that has the highest NPV since it creates the most wealth) uilt-in NPV formula in Excel but exclude using the Year 0 cash outflow) ositive amount of the initial cost in cell C44 in the formula. You would only accept the project if the Profitability Index is above 1) ccept the project if the NPV is positive) ndex is above 1) UNIT 4: TEXTBOOK PROBLEMS CHAPTER 10: PROBLEM 1 Beginning Stock Price Ending Stock Price Dividend $73 $82 $1.20 Percentage Total Return = 13.97% CHAPTER 10: PROBLEM 12 Stock Return the past 5 years -18.35% Holding Period Return for the Stock = 49.67% CHAPTER 10: PROBLEM 14 Price of Preferred Stock Last Year Current Price of Preferred Stock Preferred Stock Dividend Face Value of Preferred Stock $94.83 $96.20 4.20% $100 Total Return = 5.87% CHAPTER 10: PROBLEM 15 Stock Price 3 Months Ago Current Stock Price $41.75 $44.07 First calculate the total return for the 3 months Then calculate the APR by multiplying the answer in cell B35 by 4 EAR (Effective Annual Rate) = 5.56% 22.23% 24.15% CHAPTER 11: PROBLEM 2 Stock A Stock B Total Value of the Portfolio Expected Return on Stock A Expected Return on Stock B $3,900 $5,700 $9,600 9.50% 15.20% Expected Return on the Portfolio = 12.88% CHAPTER 11: PROBLEM 12 Beta Expected Return on the Market Risk-Free Rate 0.85 11.50% 3.40% Expected Return on the Stock = 10.29% 14.72% 28.47% (Note: Subtract your answer by 1 to o CHAPTER 12: PROBLEM 1 Beta Risk-Free Rate Expected Return on the Market 1.21 3.50% 11% Cost of Equity = 12.58% CHAPTER 12: PROBLEM 5 Common Stock weight Debt weight Cost of Equity Cost of Debt Tax Rate WACC = 70% 30% 13% 6% 35% 10.27% 6.48% 16.81% ubtract your answer by 1 to obtain the correct percentage answer) UNIT 5: TEXTBOOK PROBLEMS CHAPTER 16: PROBLEM 1 Dividend Dividend Tax Stock Price $6.30 25% $83 Step 1: Calculate the After-Tax Dividend Step 2: Ex-Dividend Price = $4.73 $78.28 CHAPTER 16: PROBLEM 4 (a thru d) # of shares of stock outstanding Stock Price 270,000 $73 A. #NAME? B. #NAME? C. #NAME? D. #NAME? CHAPTER 16: PROBLEM 7 Stock Dividend # of shares of stock outstanding 25% 25,000 Market Value Balance Sheet: Cash Fixed Assets Total $145,000 $598,000 $743,000 Debt Equity Total $127,000 $616,000 $743,000 Find the market price of stock by using the equity and # of shares outstanding New shares outstanding = New Stock price = $24.64 31,250 $19.71 CHAPTER 16: PROBLEM 16a Dividend Payout Ratio Earnings Per Share Adjustment Rate $2.05 40% $6.20 0.3 Dividend 1 year from now = $2.63 5 3 1 1.15 1 1.425 4 7 UNIT 6: TEXTBOOK PROBLEMS CHAPTER 18: PROBLEM 2 Net Worth Long-term Debt Net Working Capital (Excluding Cash) Fixed Assets Current Liabilities $13,205 $8,200 $3,205 $17,380 $1,630 Cash = Net Working Capital (Including Cash) = Current Assets = $820 $4,025 $5,655 CHAPTER 19: PROBLEM 1 (a thru d) # of shares outstanding Current Stock Price # of new shares outstanding in the future (rights offering) Price of New Stock (or rights) A. New Market Value of the Company = B. # of Rights Needed = C. Ex-Rights Price = D. Value of the Right = 490,000 $75 80,000 $71 $42,430,000 0.9466666667 rights per new share $74.44 $0.56 CHAPTER 20: PROBLEM 4a Spot exchange rate for the Canadian Dollar 6 month forward rate U.S. Dollar One Canadian Dollar is worth $1.04 $1.06 $1.00 $0.9615 (If amount is below 1, then the U.S. Dollar is wo CHAPTER 20: PROBLEM 5a Japanese Yen Exchange Rate= British Pound Exchange Rate= Cross Rate in terms of Yen per Pound = 89 1 $144.18 = = $1 $1.62 1, then the U.S. Dollar is worth more and vice versa) UNIT 1: TEXTBOOK PROBLEMS CHAPTER 2: PROBLEM 1 Current Assets Net Fixed Assets Current Liabilities Long-Term Debt $7,300 $26,200 $5,700 $12,900 Shareholder Equity = Net Working Capital = $14,900 $1,600 CHAPTER 2: PROBLEM 2 Sales Costs Depreciation Expense EBIT Interest Expense EBT Taxes @ 35% Net Income = Cash Dividends Addition to Retained Earnings = Tax Rate = Income Statement $675,300 $297,800 $45,100 $332,400 $20,700 $311,700 $109,095 $202,605 $62,000 $140,605 35% CHAPTER 2: PROBLEM 4 Taxable Income $315,000 Table 2.3 Income Taxes = Average Tax Rate = Marginal Tax Rate = Taxable Income Taxable Income (cont) Tax Rate 0 50,001 75,001 100,001 335,001 10,000,001 15,000,001 18,333,334 50,000 75,000 100,000 335,000 10,000,000 15,000,000 18,333,333 + 15% 25% 34% 39% 34% 35% 38% 35% $106,100 33.68% 39% (Note: No formula needed. Just inpu CHAPTER 2: PROBLEM 5 Sales Costs Depreciation Expense EBIT Interest Expense EBT Taxes @ 40% Net Income Tax Rate $29,200 $10,400 $1,800 $17,000 $1,050 $15,950 $6,380 $9,570 40% Operating Cash Flow = $12,420 CHAPTER 3: PROBLEM 2 Debt/Equity Ratio Return on Assets Total Equity 0.65 9.80% $850,000 Equity Multiplier = Return on Equity = Net Income = 1.65 16.17% $137,445 CHAPTER 3: PROBLEM 6 ROE Payout Ratio Retention Ratio Sustainable Growth Rate = 16% 25% 75.00% 12.00% (Note: You must calculate the retent te: No formula needed. Just input the correct rate from the Tax Rate column) te: You must calculate the retention ratio first then the sustainable growth rate) UNIT 2: TEXTBOOK PROBLEMS CHAPTER 4: PROBLEM 2 (a thru c) Present Value Interest Rate Number of Years Future Value = A. 3,200 6% 10 $5,731 B. 3,200 8% 10 $6,909 C. 3,200 6% 20 $10,263 A. 15,451 7% 12 $6,860 B. 51,557 9% 8 $25,875 C. 886,073 14% 19 $73,498 A. 217 307 3 12.26% B. 432 896 10 7.57% C. 41,000 162,181 13 11.16% A. 625 1,284 9% 8.35 B. 810 4,341 11% 16.09 C. 18,400 402,662 7% 45.61 5% $960 $840 $1,935 $1,350 $4,458 13% $960 $840 $1,935 $1,350 $3,676 18% $960 $840 $1,935 $1,350 $3,291 CHAPTER 4: PROBLEM 3 Future Value = Interest Rate Number of Years Present Value = CHAPTER 4: PROBLEM 4 Present Value = Future Value Number of Years Interest Rate CHAPTER 4: PROBLEM 5 Present Value = Future Value Interest Rate Number of Years (or Periods) CHAPTER 4: PROBLEM 11 Discount Rate Year 1: Year 2: Year 3: Year 4: Present Value @ 5%, 13%, and 18% = CHAPTER 5: PROBLEM 2 A. Settlement 1/1/91 (Think of Settlement as the beginning of the duratio Maturity 12/31/15 (Think of Maturity as the end of the duration of the b Rate 7% (Coupon Rate) YTM 7% (Yield to Maturity or Required Rate of Return) Redemption $100.00 (Bonds Face Value, Par Value, or Fair Price; Note th Frequency 2 Basis Bond Price 100.00 Multiply by 10 1000.00 (Coupon payments are semiannual, so you put in a (Always leave it blank) (The answer. But you need to multiply it by 10 to ge (Microsoft gives the bond price in 2 digits. You need CHAPTER 5: PROBLEM 3 Settlement 1/1/03 (Think of Settlement as the beginning of the duratio Maturity 12/31/15 (Think of Maturity as the end of the duration of the b Rate 6.80% (Coupon Rate) Pr 105 (The bonds price per $100 face value) Redemption 100 (Bonds Face Value, Par Value, or Fair Price; Note th Frequency 2 (Coupon payments are semiannual, so you put in a Basis: (Always leave it blank) YTM 6.23% CHAPTER 6: PROBLEM 2 Dividend Payment Dividend Growth Rate ZYX Stock Price $1.99 4.50% $31 Required Return = 10.92% CHAPTER 6: PROBLEM 4 Dividend Dividend increase per year Required Return (Return on Investment) $2.65 4.75% 11% Stock Price = $42.40 D. 550,164 16% 24 $15,614 D. 54,382 483,500 26 8.77% D. 21,500 173,439 10% 21.91 (Note: Use the built-in NPV formula in Excel) ment as the beginning of the duration of the bond) ity as the end of the duration of the bond) ty or Required Rate of Return) alue, Par Value, or Fair Price; Note that is $100, not $1,000. You make the adjustments by multiplying the answer by 10) ents are semiannual, so you put in a 2. If they are annual, then you input a 1) ut you need to multiply it by 10 to get the actual bond price) s the bond price in 2 digits. You need to multiply it by 10 to get the actual bond price) ment as the beginning of the duration of the bond) ity as the end of the duration of the bond) ce per $100 face value) alue, Par Value, or Fair Price; Note that is $100, not $1,000) ents are semiannual, so you put in a 2. If they are annual, then you input a 1) e answer by 10) UNIT 3: TEXTBOOK PROBLEMS CHAPTER 7: PROBLEM 1b Discount Rate Year 0 Year 1 Year 2 Year 3 NPV = Project A 15% ($14,500) $8,500 $6,800 $2,800 ($125.87) Project B 15% ($9,800) $4,700 $4,200 $4,100 $158.58 (Note: You will choose the project CHAPTER 7: PROBLEM 2 Year 0 1 2 3 4 5 6 7 8 Payback Period = A. $3,200 $825 $825 $825 $825 $825 $825 $825 $825 3.88 B. $4,600 $825 $825 $825 $825 $825 $825 $825 $825 5.58 Year 0 1 2 3 IRR = Project A ($5,200) 1,800 3,200 2,200 17.57% Project B ($3,600) 1,300 2,100 1,800 19.72% Discount Rate Year 0 (Initial Cost) 1 2 3 4 5 6 15% CHAPTER 7: PROBLEM 8 CHAPTER 7: PROBLEM 9 ($185,000) 62,000 62,000 62,000 62,000 62,000 62,000 $185,000 C. $7,900 $825 $825 $825 $825 $825 $825 $825 $825 9.58 7 First find the NPV Now calculate the Profitability Index 62,000 $257,946 1.39 (Use the built-in NPV formula in Excel but exc (Use the positive amount of the initial cost in c CHAPTER 8: PROBLEM 1 Cost of Souffle Maker Economic Life # of Souffles produced per year Cost to make each Souffle Price of each Souffle Discount Rate Tax Rate $27,000 6 2,300 $2 $7 14% 34% Step 1: First calculate the Operating Cash Flow $9,120 ($27,000) years Step 2: Place the answer you get for your Operating Cash Flow in the year 1 thru year 6 cells below Year 1 $9,120 Year 2 $9,120 Year 3 $9,120 Year 4 $9,120 Year 5 $9,120 Year 6 $9,120 Step 3: Now find the NPV. Be sure to include the initial cost by using cell C58 as it is negative NPV = $8,465 (You will accept the project if the NPV is positi (Note: You will choose the project that has the highest NPV since it creates the most wealth) uilt-in NPV formula in Excel but exclude using the Year 0 cash outflow) ositive amount of the initial cost in cell C44 in the formula. You would only accept the project if the Profitability Index is above 1) ccept the project if the NPV is positive) dex is above 1) UNIT 4: TEXTBOOK PROBLEMS CHAPTER 10: PROBLEM 1 Beginning Stock Price Ending Stock Price Dividend $73 $82 $1.20 Percentage Total Return = 13.97% CHAPTER 10: PROBLEM 12 Stock Return the past 5 years -18.35% Holding Period Return for the Stock = 49.67% CHAPTER 10: PROBLEM 14 Price of Preferred Stock Last Year Current Price of Preferred Stock Preferred Stock Dividend Face Value of Preferred Stock $94.83 $96.20 4.20% $100 Total Return = 5.87% CHAPTER 10: PROBLEM 15 Stock Price 3 Months Ago Current Stock Price $41.75 $44.07 First calculate the total return for the 3 months Then calculate the APR by multiplying the answer in cell B35 by 4 EAR (Effective Annual Rate) = 5.56% 22.23% 24.15% CHAPTER 11: PROBLEM 2 Stock A Stock B Total Value of the Portfolio Expected Return on Stock A Expected Return on Stock B $3,900 $5,700 $9,600 9.50% 15.20% Expected Return on the Portfolio = 12.88% CHAPTER 11: PROBLEM 12 Beta Expected Return on the Market 0.85 11.50% 14.72% 28.47% (Note: Subtract your answer by 1 to o Risk-Free Rate 3.40% Expected Return on the Stock = 10.29% CHAPTER 12: PROBLEM 1 Beta Risk-Free Rate Expected Return on the Market 1.21 3.50% 11% Cost of Equity = 12.58% CHAPTER 12: PROBLEM 5 Common Stock weight Debt weight Cost of Equity Cost of Debt Tax Rate WACC = 70% 30% 13% 6% 35% 10.27% 6.48% 16.81% ubtract your answer by 1 to obtain the correct percentage answer) UNIT 5: TEXTBOOK PROBLEMS CHAPTER 16: PROBLEM 1 Dividend Dividend Tax Stock Price $6.30 25% $83 Step 1: Calculate the After-Tax Dividend Step 2: Ex-Dividend Price = $4.73 $78.28 CHAPTER 16: PROBLEM 4 (a thru d) # of shares of stock outstanding Stock Price A. 270,000 $73 Stock Price $43.80 B. $63.48 C. $51.23 D. $127.75 CHAPTER 16: PROBLEM 7 Stock Dividend # of shares of stock outstanding 25% 25,000 Market Value Balance Sheet: Cash Fixed Assets Total $145,000 $598,000 $743,000 Debt Equity Total $127,000 $616,000 $743,000 Find the market price of stock by using the equity and # of shares outstanding New shares outstanding = New Stock price = $24.64 31,250 $19.71 CHAPTER 16: PROBLEM 16a Dividend Payout Ratio Earnings Per Share Adjustment Rate $2.05 40% $6.20 0.3 Dividend 1 year from now = $2.63 No. of shares 450,000 310,500 384,750 154,286 UNIT 6: TEXTBOOK PROBLEMS CHAPTER 18: PROBLEM 2 Net Worth Long-term Debt Net Working Capital (Excluding Cash) Fixed Assets Current Liabilities $13,205 $8,200 $3,205 $17,380 $1,630 Cash = Net Working Capital (Including Cash) = Current Assets = $820 $4,025 $5,655 CHAPTER 19: PROBLEM 1 (a thru d) # of shares outstanding Current Stock Price # of new shares outstanding in the future (rights offering) Price of New Stock (or rights) A. New Market Value of the Company = B. # of Rights Needed = C. Ex-Rights Price = D. Value of the Right = 490,000 $75 80,000 $71 $42,430,000 0.9466666667 rights per new share $74.44 $0.56 CHAPTER 20: PROBLEM 4a Spot exchange rate for the Canadian Dollar 6 month forward rate U.S. Dollar One Canadian Dollar is worth $1.04 $1.06 $1.00 $0.9615 (If amount is below 1, then the U.S. Dollar is wo CHAPTER 20: PROBLEM 5a Japanese Yen Exchange Rate= British Pound Exchange Rate= Cross Rate in terms of Yen per Pound = 89 1 $144.18 = = $1 $1.62 1, then the U.S. Dollar is worth more and vice versa) UNIT 1: TEXTBOOK PROBLEMS CHAPTER 2: PROBLEM 1 Current Assets Net Fixed Assets Current Liabilities Long-Term Debt $7,300 $26,200 $5,700 $12,900 Shareholder Equity = Net Working Capital = $14,900 $1,600 CHAPTER 2: PROBLEM 2 Sales Costs Depreciation Expense EBIT Interest Expense EBT Taxes @ 35% Net Income = Cash Dividends Addition to Retained Earnings = Tax Rate = Income Statement $675,300 $297,800 $45,100 $332,400 $20,700 $311,700 $109,095 $202,605 $62,000 $140,605 35% CHAPTER 2: PROBLEM 4 Taxable Income $315,000 Table 2.3 Income Taxes = Average Tax Rate = Marginal Tax Rate = Taxable Income Taxable Income (cont) Tax Rate 0 50,001 75,001 100,001 335,001 10,000,001 15,000,001 18,333,334 50,000 75,000 100,000 335,000 10,000,000 15,000,000 18,333,333 + 15% 25% 34% 39% 34% 35% 38% 35% $106,100 33.68% 39% (Note: No formula needed. Just inpu CHAPTER 2: PROBLEM 5 Sales Costs Depreciation Expense EBIT Interest Expense EBT Taxes @ 40% Net Income Tax Rate $29,200 $10,400 $1,800 $17,000 $1,050 $15,950 $6,380 $9,570 40% Operating Cash Flow = $12,420 CHAPTER 3: PROBLEM 2 Debt/Equity Ratio Return on Assets Total Equity 0.65 9.80% $850,000 Equity Multiplier = Return on Equity = Net Income = 1.65 16.17% $137,445 CHAPTER 3: PROBLEM 6 ROE Payout Ratio Retention Ratio Sustainable Growth Rate = 16% 25% 75.00% 12.00% (Note: You must calculate the retent te: No formula needed. Just input the correct rate from the Tax Rate column) te: You must calculate the retention ratio first then the sustainable growth rate) UNIT 2: TEXTBOOK PROBLEMS CHAPTER 4: PROBLEM 2 (a thru c) Present Value Interest Rate Number of Years Future Value = A. 3,200 6% 10 $5,731 B. 3,200 8% 10 $6,909 C. 3,200 6% 20 $10,263 A. 15,451 7% 12 $6,860 B. 51,557 9% 8 $25,875 C. 886,073 14% 19 $73,498 A. 217 307 3 12.26% B. 432 896 10 7.57% C. 41,000 162,181 13 11.16% A. 625 1,284 9% 8.35 B. 810 4,341 11% 16.09 C. 18,400 402,662 7% 45.61 5% $960 $840 $1,935 $1,350 $4,458 13% $960 $840 $1,935 $1,350 $3,676 18% $960 $840 $1,935 $1,350 $3,291 CHAPTER 4: PROBLEM 3 Future Value = Interest Rate Number of Years Present Value = CHAPTER 4: PROBLEM 4 Present Value = Future Value Number of Years Interest Rate CHAPTER 4: PROBLEM 5 Present Value = Future Value Interest Rate Number of Years (or Periods) CHAPTER 4: PROBLEM 11 Discount Rate Year 1: Year 2: Year 3: Year 4: Present Value @ 5%, 13%, and 18% = CHAPTER 5: PROBLEM 2 A. Settlement 1/1/91 (Think of Settlement as the beginning of the duratio Maturity 12/31/15 (Think of Maturity as the end of the duration of the b Rate 7% (Coupon Rate) YTM 7% (Yield to Maturity or Required Rate of Return) Redemption $100.00 (Bonds Face Value, Par Value, or Fair Price; Note th Frequency 2 Basis Bond Price 100.00 Multiply by 10 1000.00 (Coupon payments are semiannual, so you put in a (Always leave it blank) (The answer. But you need to multiply it by 10 to ge (Microsoft gives the bond price in 2 digits. You need CHAPTER 5: PROBLEM 3 Settlement 1/1/03 (Think of Settlement as the beginning of the duratio Maturity 12/31/15 (Think of Maturity as the end of the duration of the b Rate 6.80% (Coupon Rate) Pr 105 (The bonds price per $100 face value) Redemption 100 (Bonds Face Value, Par Value, or Fair Price; Note th Frequency 2 (Coupon payments are semiannual, so you put in a Basis: (Always leave it blank) YTM 6.23% CHAPTER 6: PROBLEM 2 Dividend Payment Dividend Growth Rate ZYX Stock Price $1.99 4.50% $31 Required Return = 10.92% CHAPTER 6: PROBLEM 4 Dividend Dividend increase per year Required Return (Return on Investment) $2.65 4.75% 11% Stock Price = $42.40 D. 550,164 16% 24 $15,614 D. 54,382 483,500 26 8.77% D. 21,500 173,439 10% 21.91 (Note: Use the built-in NPV formula in Excel) ment as the beginning of the duration of the bond) ity as the end of the duration of the bond) ty or Required Rate of Return) alue, Par Value, or Fair Price; Note that is $100, not $1,000. You make the adjustments by multiplying the answer by 10) ents are semiannual, so you put in a 2. If they are annual, then you input a 1) ut you need to multiply it by 10 to get the actual bond price) s the bond price in 2 digits. You need to multiply it by 10 to get the actual bond price) ment as the beginning of the duration of the bond) ity as the end of the duration of the bond) ce per $100 face value) alue, Par Value, or Fair Price; Note that is $100, not $1,000) ents are semiannual, so you put in a 2. If they are annual, then you input a 1) e answer by 10) UNIT 3: TEXTBOOK PROBLEMS CHAPTER 7: PROBLEM 1b Discount Rate Year 0 Year 1 Year 2 Year 3 NPV = Project A 15% ($14,500) $8,500 $6,800 $2,800 ($125.87) Project B 15% ($9,800) $4,700 $4,200 $4,100 $158.58 (Note: You will choose the project CHAPTER 7: PROBLEM 2 Year 0 1 2 3 4 5 6 7 8 Payback Period = A. $3,200 $825 $825 $825 $825 $825 $825 $825 $825 3.88 B. $4,600 $825 $825 $825 $825 $825 $825 $825 $825 5.58 Year 0 1 2 3 IRR = Project A ($5,200) 1,800 3,200 2,200 17.57% Project B ($3,600) 1,300 2,100 1,800 19.72% Discount Rate Year 0 (Initial Cost) 1 2 3 4 5 6 15% CHAPTER 7: PROBLEM 8 CHAPTER 7: PROBLEM 9 ($185,000) 62,000 62,000 62,000 62,000 62,000 62,000 $185,000 C. $7,900 $825 $825 $825 $825 $825 $825 $825 $825 9.58 7 First find the NPV Now calculate the Profitability Index 62,000 $257,946 1.39 (Use the built-in NPV formula in Excel but exc (Use the positive amount of the initial cost in c CHAPTER 8: PROBLEM 1 Cost of Souffle Maker Economic Life # of Souffles produced per year Cost to make each Souffle Price of each Souffle Discount Rate Tax Rate $27,000 6 2,300 $2 $7 14% 34% Step 1: First calculate the Operating Cash Flow $9,120 ($27,000) years Step 2: Place the answer you get for your Operating Cash Flow in the year 1 thru year 6 cells below Year 1 $9,120 Year 2 $9,120 Year 3 $9,120 Year 4 $9,120 Year 5 $9,120 Year 6 $9,120 Step 3: Now find the NPV. Be sure to include the initial cost by using cell C58 as it is negative NPV = $8,465 (You will accept the project if the NPV is positi (Note: You will choose the project that has the highest NPV since it creates the most wealth) uilt-in NPV formula in Excel but exclude using the Year 0 cash outflow) ositive amount of the initial cost in cell C44 in the formula. You would only accept the project if the Profitability Index is above 1) ccept the project if the NPV is positive) dex is above 1) UNIT 4: TEXTBOOK PROBLEMS CHAPTER 10: PROBLEM 1 Beginning Stock Price Ending Stock Price Dividend $73 $82 $1.20 Percentage Total Return = 13.97% CHAPTER 10: PROBLEM 12 Stock Return the past 5 years -18.35% Holding Period Return for the Stock = 49.67% CHAPTER 10: PROBLEM 14 Price of Preferred Stock Last Year Current Price of Preferred Stock Preferred Stock Dividend Face Value of Preferred Stock $94.83 $96.20 4.20% $100 Total Return = 5.87% CHAPTER 10: PROBLEM 15 Stock Price 3 Months Ago Current Stock Price $41.75 $44.07 First calculate the total return for the 3 months Then calculate the APR by multiplying the answer in cell B35 by 4 EAR (Effective Annual Rate) = 5.56% 22.23% 24.15% CHAPTER 11: PROBLEM 2 Stock A Stock B Total Value of the Portfolio Expected Return on Stock A Expected Return on Stock B $3,900 $5,700 $9,600 9.50% 15.20% Expected Return on the Portfolio = 12.88% CHAPTER 11: PROBLEM 12 Beta Expected Return on the Market 0.85 11.50% 14.72% 28.47% (Note: Subtract your answer by 1 to o Risk-Free Rate 3.40% Expected Return on the Stock = 10.29% CHAPTER 12: PROBLEM 1 Beta Risk-Free Rate Expected Return on the Market 1.21 3.50% 11% Cost of Equity = 12.58% CHAPTER 12: PROBLEM 5 Common Stock weight Debt weight Cost of Equity Cost of Debt Tax Rate WACC = 70% 30% 13% 6% 35% 10.27% 6.48% 16.81% ubtract your answer by 1 to obtain the correct percentage answer) UNIT 5: TEXTBOOK PROBLEMS CHAPTER 16: PROBLEM 1 Dividend Dividend Tax Stock Price $6.30 25% $83 Step 1: Calculate the After-Tax Dividend Step 2: Ex-Dividend Price = $4.73 $78.28 CHAPTER 16: PROBLEM 4 (a thru d) # of shares of stock outstanding Stock Price A. 270,000 $73 Stock Price $43.80 B. $63.48 C. $51.23 D. $127.75 CHAPTER 16: PROBLEM 7 Stock Dividend # of shares of stock outstanding 25% 25,000 Market Value Balance Sheet: Cash Fixed Assets Total $145,000 $598,000 $743,000 Debt Equity Total $127,000 $616,000 $743,000 Find the market price of stock by using the equity and # of shares outstanding New shares outstanding = New Stock price = $24.64 31,250 $19.71 CHAPTER 16: PROBLEM 16a Dividend Payout Ratio Earnings Per Share Adjustment Rate $2.05 40% $6.20 0.3 Dividend 1 year from now = $2.63 No. of shares 450,000 310,500 384,750 154,286 UNIT 6: TEXTBOOK PROBLEMS CHAPTER 18: PROBLEM 2 Net Worth Long-term Debt Net Working Capital (Excluding Cash) Fixed Assets Current Liabilities $13,205 $8,200 $3,205 $17,380 $1,630 Cash = Net Working Capital (Including Cash) = Current Assets = $820 $4,025 $5,655 CHAPTER 19: PROBLEM 1 (a thru d) # of shares outstanding Current Stock Price # of new shares outstanding in the future (rights offering) Price of New Stock (or rights) A. New Market Value of the Company = B. # of Rights Needed = C. Ex-Rights Price = D. Value of the Right = 490,000 $75 80,000 $71 $42,430,000 0.9466666667 rights per new share $74.44 $0.56 CHAPTER 20: PROBLEM 4a Spot exchange rate for the Canadian Dollar 6 month forward rate U.S. Dollar One Canadian Dollar is worth $1.04 $1.06 $1.00 $0.9615 (If amount is below 1, then the U.S. Dollar is wo CHAPTER 20: PROBLEM 5a Japanese Yen Exchange Rate= British Pound Exchange Rate= Cross Rate in terms of Yen per Pound = 89 1 $144.18 = = $1 $1.62 1, then the U.S. Dollar is worth more and vice versa)