FCF 9th Edition Chapter 15 (5 Files Merged)

Chapter 15
Problems 1-15
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Calculations in red
Answers in green
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Chapter 15
Question 1
Input Area:
Shares outstanding
Price
New shares
New price
$
$
500,000
81.00
60,000
70.00
Output Area:
a.
b.
c.
d.
e.
New market value

$
44,700,000
Number of rights needed
8.33
P(x)
$
79.82
Value of a right
$
1.18
A rights offering usually costs less, it protects
the proportionate interests of existing shareholders, and protects against underpricing.
Chapter 15
Question 2
Input Area:
Amount raised
Stock price
Shares outstanding
Subscription price
Shareholder
$
$
$
40,000,000
53
4,100,000
48
1,000
Output Area:
a. Maximum subscription price = current share price

Minimum is anything > 0
b. Number of new shares

53
833,333
4.92
c. P(X)
Value of a right
$
$
52.16
0.84
d. Before offer:
After offer:
$
$
53,000
53,000
Chapter 15
Question 3
Input Area:
Ex-rights price
Rights-on price
Funds needed
Price
$
$
$
$
81
74.80
20,000,000
40
Output Area:
N
Number of new shares
Number of old shares
5.613
500,000
2,806,452
Chapter 15
Question 4
Input Area:
Undervalued IPO
Overvalued IPO
Price
# of shares
1/2 # of shares
$
$
$
7
5
40
1,000
500
Output Area:
If you receive 1000 shares each, the profit

$
2,000
is:
Expected profit
$
(1,500)
This is an example of the winner's curse.
Chapter 15
Question 5
Input Area:
Funds needed
Offer price
Spread
$
$
60,000,000
21
9%
65,934,066
Output Area:
Proceeds from sale

Number of shares offered
3,139,717
Chapter 15
Question 6
Input Area:
Funds needed
Offer price
Spread
Administrative expense
$
$
$
60,000,000
21
9%
900,000
66,923,077
Output Area:
Proceeds from sale

Number of shares offered
3,186,813
Chapter 15
Question 7
Input Area:
Company price per share

Shares sold
Initial offer price
New price
Direct costs
Indirect costs
$
$
$
$
$
18.20
10,000,000
20.00
25.60
900,000
320,000
Output Area:
Net amount raised

Total direct costs
Total indirect costs
Total costs
Flotation cost
$
$
$
$
180,780,000
18,900,000
56,320,000
75,220,000
41.61%
Chapter 15
Question 8
Input Area:
Shares outstanding
Share price
Company equity
New shares issued
New price:
X
Y
Z
$
$
120,000
94
11,280,000
25,000
$
$
$
94
90
85

P(X)
Share price drops by
$
$
4.80
94.00
-
P(Y)
$
$
93.31
0.69
P(Z)
$
$
92.45
1.55
Output Area:
Chapter 15
Question 9
Input Area:
Shares outstanding
Share price
Book value
Net income
New facility cost
Increase to net income
$
$
$
$
$
8,000,000
50
18
17,000,000
35,000,000
1,100,000
Output Area:
8,700,000
Number of shares after offering
New book value per share
$
20.57
EPS0
$
2.13
P/E0
23.53
Earinings1
$
18,100,000
EPS1
$
2.08
Price1
$
48.95
Old market to book
2.7778
New market to book
2.3792
Accounting dilution has occurred because new
shares were issued when the market to book ratio
was less than one; market value dilution has occurred
because the firm financed a negative NPV project:
NPV
$
(9,117,647)
For the price to remain unchanged when the P/E
ratio is constant, EPS must remain constant.
$
18,487,500
Net income
Chapter 15
Question 10
Input Area:
Stock price
Number of shares
Total assets
Total liabilities
Net income
Investment cost
$
$
$
$
$
84
30,000
8,000,000
3,400,000
900,000
850,000
$
$
0.1957
1,066,304
30.00
Output Area:
ROE
NI
EPS0
Number of new shares
EPS1
P/E0
P1
P/E1
BVPS0
BVPS1
Mkt to book 0
Mkt to book 1
$
$
$
$
10,119
26.58
2.800
74.42
2.800
153.33
135.85
0.5478
0.5478
NPV
$
(384,348)
Accounting dilution takes place here
because the market-to-book ratio is less
than one. Market value dilution has
occurred since the firm is investing in a
negative NPV project.
Chapter 15
Question 11
Input Area:
Stock price
Number of shares
Total assets
Total liabilities
Net Income
Cost
P/E0
$
$
$
$
$
$
84
30,000
8,000,000
3,400,000
900,000
850,000
2.800
Output Area:
EPS1
Net income1
ROE
$
$
30.00
303,571
35.71%
If the share price after the offering is the same,

$0.00
then the project NPV is
Accounting dilution still takes place, as the
BVPS still falls from
$
153.33 to
$
135.85 , but no market
value dilution taked place because the firm is
investing in a zero NPV project.
Chapter 15
Question 12
Input Area:
Ex-rights price
Stock price
Number of shares
Rights offer total
$
$
$
71
76
19,000,000
60,000,000
27.48
Output Area:
Subscription price
Chapter 15
Question 13
Output Area:
Px = [NPRO+PS]/(N+1)
Value of a right = PRO - PX = PRO - {[NPRO+PS]/N+1)}
= [(N+1)PRO - NPRO - PS]/(N+1) =[PRO - PS/(N+1)
Chapter 15
Question 14
Input Area:
Rights offer total

Number of shares
Stock price
Subscription price
Spread charge
Shares owned
$
$
$
5,600,000
650,000
50
23
6%
5,000
Output Area:
Net proceeds to company

New shares offered
P(X)
Value of a right
Proceeds from selling rights
$
$
$
21.62
259,019
2.51
42.31
7.69
38,467.41
Chapter 15
Question 15
Input Area:
Rights offer per share

Subscription price
Stock price
Ex-rights stock price
Rights price
$
$
$
$
4
35
60
53
3
55.00
Output Area:
P(X)
Value of a right
The rights are
$
underpriced
You can create an immediate profit on

the ex-rights day if the stock is selling for
$
53.00 and the rights are
selling for
$
3
by executing the following transactions. Buy
4 in the market for
$
12.00 Use these rights to
purchase a new share at the subscription
$
35
price of
Immediately sell this share in the market for
$
53.00 creating an instant
$
6.00 profit.
Chapter 17
Problems 1-16
Input boxes in tan
Given data in blue
Calculations in red
Answers in green
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Chapter 17
Question 1
Input Area:
Dividend per share

Tax rate
Price
$
$
4.60
15%
80.37
After-tax Dividend
3.91
Ex-dividend price
76.46
Output Area:
Chapter 17
Question 2
Input Area:
Common stock
Par value
Capital surplus
Retained earnings
Total owners' equity
a. Stock price
Stock dividend
$
$
$
$
$
$
b. Stock dividend
30,000
1
285,000
649,180
964,180
30
10%
25%
Output Area:
a. New shares outstanding

New shares issued
Capital surplus on new shares
Common stock
Capital surplus
Retained earnings
b. New shares outstanding

New shares issued
Capital surplus on new shares
Common stock
Capital surplus
Retained earnings
33,000
3,000
87,000
$
$
$
$
33,000
372,000
559,180
964,180
37,500
7,500
217,500
$
$
$
$
37,500
502,500
424,180
964,180
Chapter 17
Question 3
Input Area:
Common stock
Par value
Capital surplus
Retained earnings
Total owners'Equity
Stock price
a. Stock split
b. Stock split
$
$
$
$
$
$
30,000
1
285,000
649,180
964,180
30
4
1
Output Area:
120,000
The accounts are unchanged except that
$
0.25
par value is now
b. New shares outstanding
6,000
The accounts are unchanged except that
$
5.00
par value is now
for
for
1
5
Chapter 17
Question 4
Input Area:
a.
b.
c.
d.
Shares outstanding
Stock price
Stock split
Stock divdend percent
Stock divdend percent
Stock split (shares)
350,000
90.00
5 for
15.00%
42.50%
4 for
Output Area:
a.
b.
c.
d.
Stock split
Stock dividend
Stock dividend
Stock split
e. a.
b.
c.
d.
New shares outstanding

$
$
$
$
54.00
78.26
63.16
157.50
583,333
402,500
498,750
200,000
Chapter 17
Question 5
Input Area:
Shares outstanding
Dividend per share
Cash
Fixed assets
Total
8,000
1.30
Market Value Balance Sheet

$ 38,500
Equity
270,000
$ 308,500
Total
308,500
308,500
10,400
298,100
298,100
Output Area:
Price0
PriceX
$
$
38.56
37.26
The equity and cash accounts will decline by:
Cash
Fixed assets
Total

$ 28,100
Equity
$ 270,000
$ 298,100
Total
Chapter 17
Question 6
Input Area:
Repurchase
Shares outstanding
Dividend per share
Cash
Fixed assets
Total
$
$
10,400
8,000
1.30

$ 38,500
Equity
$ 270,000
$ 308,500
Total
308,500
308,500
Output Area:
Repurchasing the shares will reduce

shareholders' equity by
$ 10,400.00
Shares bought
269.69
7,730.31
Price after repurchase
$
38.56
The repurchase is effectively the same as the cash dividend because
you either hold a share worth
$
38.56
or a share worth
$
37.26 and $
1.30 in cash.
Therefore you participate in the repurchase according to the
dividend payout percentage; you are unaffected.
Chapter 17
Question 7
Input Area:
Stock dividend
Shares outstanding
Cash
Fixed assets
Total
25%
12,000

$ 93,000
Debt
509,000
Equity
$ 602,000
Total
Output Area:
Price0

PriceX
39.25
15,000
31.40
$
$
131,000
471,000
602,000
Chapter 17
Question 8
Input Area:
Stock dividend
Price
Par value
Common stock
Capital surplus
Retained earnings
$
$
$
$
$
$
15%
35
1
406,000
1,340,000
3,427,000
5,173,000
Output Area:

New shares issued
Capital surplus
for new shares
Common stock
Capital surplus
Retained earnings
466,900
60,900
$
2,070,600
$
$
$
$
466,900
3,410,600
1,295,500
5,173,000
Chapter 17
Question 9
Input Area:
Stock split
Dividend
Dividend increase
Par value
Common stock
Capital surplus
Retained earnings
$
$
$
$
$
4
0.85
10%
for
1
406,000
1,340,000
3,427,000
5,173,000
Output Area:
The equity accounts are unchanged except

$ 0.25
the new par value of the stock is
per share.
Dividends this year
Last year's dividend
Dividends per share
$ 1,380,400.00
$ 1,254,909.09
$
3.09
Chapter 17
Question 10
Input Area:
Shares owned
Dividend per share
Liquidating dividend
Required return
$
$
1,000
2.30
53
15%
Stock price today
42.08
Equal dividend amount
25.88
Stock price in one year
46.087
You want
in one year but you
will only get
25,881.40
2,300.00
Output Area:
You need to sell

shares at time 1.
Cash flow at time 1
Cash flow at time 2
511.67
$
$
25,881.40
25,881.40
Chapter 17
Question 11
Input Area:
Dividend desired in year 1

Shares owned
Dividend per share
Liquidating dividend
Required return
$
$
$
750.00
1,000
2.30
53
15%
Output Area:
Stock price in one year

Dividend paid in year 2
$
$
You will buy

shares at time 1.
46.087
2,300.00
33.63
Your dividend in year 2 is
54,782.50
PV of homemade dividend
PV of current dividends
$
$
42,075.61
42,075.61
Chapter 17
Question 12
Input Area:
Extra dividend
Earnings per share
Price per share
Shares outstanding
$
$
$
9,000
1.30
64
1,000
Output Area:
a. Cash Dividend:
DPS
$
9.00
Price per share
$
55.00
The wealth of a shareholder who is
$
64.00
holding one share is
Repurchase:
140.63
Shares repurchased
If you choose to let your shares be
repurchased, you have $30
$
64.00
in cash. If you keep your shares they are
$
64.00
still worth
b. Cash Dividend:
EPS
P/E
1.30
42.31
Repurchase:
EPS
P/E
1.51
42.31
c. A share repurchase would seem to be the

preferred course of action. Only those
shareholders who wish to sell will do so,
giving the shareholder a tax timing option
that he or she doesn't get with a dividend
payment.
Chapter 17
Question 13
Input Area:
Dividend yield
Income tax rate
Earnings growth rate
Stock price growth rate
5.0%
35%
15%
15%
Output Area:
Growth rate
11.75%
Pretax return
16.75%
Chapter 17
Question 14
a. Personal tax rate

Capital gains tax rate
0%
0%
b. Personal tax rate

15%
0%
c. Personal tax rate

15%
30%
d. Corporate (with 70% exclusion)

Personal tax rate
35%
35%
Output Area:
a. P0 - PX =
b. P0 - PX =
0.85 D
c. P0 - PX =
1.2143 D
d. P0 - PX =
1.3769 D
e. Since different investors have widely tax rates
on ordinary income and capital gains, then
dividend payments have different aftertax
implications for different investors. This
differential taxation among investors is one
aspect of what we have called the clientele
effect.
Chapter 17
Question 15
Extra cash
Period for investment
Treasury bill yield
Preferred stock yield
Dividend exclusion rate
Corporate tax rate
Individual income tax rate
Individual dividend tax rate
2,000,000
3
5%
8%
70%
35%
31%
15%
Output Area:
If the company invests the money now:

Corporate investment in T-bills:
Aftertax T-bill yield
3.25%
FV of investment
$
2,201,406.16
Aftertax cash flow
$
1,871,195.23
to shareholders
Corporate investment in preferred stock:
$
160,000.00
Preferred stock dividends
Divdends excluded from tax $
112,000.00
Taxable dividends
$
48,000.00
Tax on preferred dividends
$
16,800.00
Aftertax corporate dividend
$
143,200.00
Aftertax preferred
7.16%
dividend yield
FV of preferred investment
$
2,461,093.48
Aftertax cash flow
$
2,091,929.46
to shareholders
If the company pays a dividend now:

Aftertax payment to
shareholders
$
1,700,000.00
Individual invests in Treasury bills:
Aftertax individual yield
on T-bills
FV of T-bill investment
$
3.45%
1,882,090.08
Individual invests in preferred stock:

Preferred stock dividends
$
136,000.00
Tax on preferred dividends
$
42,160.00
Aftertax preferred dividend
$
93,840.00
Aftertax preferred
dividend yield
5.52%
FV of preferred investment
$
1,997,345.84
Chapter 17
Question 16
Extra cash
Treasury bond yield
Corporate tax rate
b. Preferred stock yield
Dividend exclusion rate
1,000
6%
35%
9%
70%
Output Area:
a. Individual tax rate
35.00%
b. Individual tax rate
10.50%
Chapter 18
Problems 1-18
Input boxes in tan
Given data in blue
Calculations in red
Answers in green
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Chapter 18
Question 1
Input Area:
Increase
Decrease
No change
I
D
N
Output Area:
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
N
N
N
D
D
D
N
D
I
D
D
N
D
D
I
Chapter 18
Question 2
Input Area:
Book net worth

Long-term debt
NWC other than cash
Fixed assets
Current liabilities
$
$
$
$
$
10,380
7,500
2,105
15,190
1,450
Total L&E
19,330
Cash
2,035
NWC
4,140
Current assets
5,590
Output Area:
Chapter 18
Question 3
Input Area:
Increase
Decrease
No change
I
D
N
Output Area:
a.
b.
c.
d.
e.
f.
I
I
D
N
D
N
Chapter 18
Question 4
Input Area:
Increase
Decrease
No change
I
D
N
Output Area:
a.
b.
c.
d.
e.
f.
Cash Cycle
I
I
D
D
D
I
Operating Cycle
I
N
D
D
N
I
Chapter 18
Question 5
Input Area:
Beginning A/R
a. Collection period
b. Collection period
c. Collection period
360
45
60
30
Q1
Sales
Q2
790
Q3
740
Q4
870
950
Output Area:
a.
b.
c.
45 -day collection period

Q1
Beginning receivables $
360.00
$
Sales
$
790.00
$
Cash collections
$
(755.00)
$
Ending receivables
$
395.00
$
Q2
395.00
740.00
(765.00)
370.00

360.00
$
Sales
$
790.00
$
Cash collections
$
(623.33) # $
Ending receivables
$
526.67 # $
360.00
$
Sales
$
790.00
$
Cash collections
$
(886.67) # $
Ending receivables
$
263.33 # $
$
$
$
$
Q4
435.00
950.00
(910.00)
475.00
526.67
$
740.00
$
(773.33) # $
493.33 # $
493.33
$
870.00
$
(783.33) # $
580.00 # $
580.00
950.00
(896.67)
633.33
263.33 # $
740.00
$
(756.67) # $
246.67 # $
246.67 # $
870.00
$
(826.67) # $
290.00 # $
290.00
950.00
(923.33)
316.67
$
$
$
$
Q3
370.00
870.00
(805.00)
435.00
Chapter 18
Question 6
Input Area:
Item
Inventory
A/R
A/P
Net sales
COGS
$
$
$
Beginning
9,780
4,108
7,636
$
$
$
Ending
11,380
4,938
7,927
$ 89,804
$ 56,384
Output Area:
Inventory turnover
Inventory Period
Receivable turnover
Receivable period
Operating cycle
Payables turnover
Payables period
Cash cycle
5.3293
68.4893
19.8550
18.3833
86.87
7.2459
50.3733
36.50
Chapter 18
Question 7
Input Area:
Collection period
Discount
32
1.50%
Output Area:
Preiods in a year
EAR
11.4063
18.81%
Chapter 18
Question 8
Input Area:
Projected sales increase

Orders (% of sales)
b. Payables period
c. Payables period
15%
30%
90
60
Q1
Sales
Q2
820
Q3
860
930
a, The payable period is zero since payment is made immediately.

Payment in each period = 0.30 times next period sales
Q1
Q2
Payment of accounts
$
258.00
$
279.00
$
Q3
297.00
Output Area:
b. If the payables period is

Payment of accounts
c. If the payables period is
Payment of account
90
days.
246.00
$
258.00
279.00
60
days.
250.00
$
265.00
285.00
Q4
$
990
Q4
282.90
297.00
292.30
Chapter 18
Question 9
Input Area:
Purchases (% of sales)
Payables period
Expenses (% of sales)
Interest & dividends per Q
Projected sales Q(1) next year
$
$
Sales
75%
60 days
20%
90
1,090
Q1
Q2
980
930
Output Area:
60
With a payables period of
Payment of accounts
Wages, taxes, other expenses
Long-term financing expenses
Total
Q1
722.50
196.00
90.00
1,008.50
days.
Q2
732.50
186.00
90.00
1,008.50
Q3
1,070
Q3
847.50
214.00
90.00
1,151.50
Q4
$
1,250
Q4
897.50
250.00
90.00
1,237.50
Chapter 18
Question 10
Input Area:
Sales budget
Credit sales:
In the month of the sale
In the month of after the sale
In the second month after the sale
A/R balance at the end of previous Q
December uncollected sales
January
235,000
65%
20%
15%
$
$
173,000
136,000
a. November sales
246,666.67
b. December sales
388,571.43
c. January collections
Febuary collections
March collections
$
$
$
267,464.29
274,285.71
279,000.00
Output Area:
February
260,000
March
295,000
Chapter 18
Question 11
Input Area:
Credit sales
Credit purchases
Cash disbursements
Wages, taxes, and expenses
Interest
Equipment purchases
Uncollected credit sales
Collected in the month of the sale
Collected in the following month
Previous month credit sales
Previous month credit purchases
Beginning cash
April
390,000
147,800
53,800
13,100
87,000
$
$
$
May
364,000
176,300
51,000
13,100
147,000
June
438,000
208,500
78,300
13,100
-
5%
35%
60%
245,000
168,000
140,000
Output Area:
Sales collections = .35 times current month sales + .60 times previous month sales.
Beginning cash balance

Cash receipts
Cash collections from credit sales
Total cash available
Cash disbursements
Purchases
Wages, taxes, and expenses
Interest
Equipment purchases
Total cash disbursements
Ending cash balance
April
140,000
$
$
$
$
May
101,600
June
104,100
283,500
423,500
#
# $
361,400
463,000
371,700
475,800
168,000
53,800
13,100
87,000
321,900
101,600
147,800
51,000
13,100
147,000
358,900
104,100
$
# $
$
$
176,300
78,300
13,100
267,700
208,100
Chapter 18
Problem 12
Input area:
2007
Assets
Cash
Accounts receivable
Inventories
Property, plant, and equipment
Less: Accumulated depreciation
Balance Sheet (in $ tho

2008
38,000
87,380
76,000
183,760
57,160
36,900
91,680
79,670
196,480
65,350
327,980
339,380
Cash
Accounts receivable
Inventories
Property, plant, and equipment
Source
Use
Use
Use
$
$
$
$
1,100
(4,300)
(3,670)
(12,720)
Accounts payable
Accrued expenses
Long-term debt
Common stock
Accumulated retained earnings
Source
Use
Source
Source
Source
$
$
$
$
$
2,600
(810)
3,000
5,000
1,610
Total assets
Output area:
thousands)
2007
Liabilities and Equity
Accounts payable
Accrued expenses
Long-term debt
Common stock
Accumulated retained earnings
Total liabilities and equity
2008
56,300
7,850
32,000
20,000
211,830
58,900
7,040
35,000
25,000
213,440
327,980
339,380
Chapter 18
Question 13
Input Area:
Line of credit
Interest rate
Compensating balance
b. Amount borrowed
Months to repay
50,000,000
0.640%
5%
15,000,000
6
Output Area:
a. Compensating balance amount

Monthly interest amount
Amount you can use
Periodic rate
$
$
$
EAR
b. Amount to borrow
Total interest paid
2,500,000
320,000
47,500,000
0.6737%
8.39%
$ 15,789,473.68
$
616,100.02
Chapter 18
Question 14
Input Area:
Line of credit
Interest rate per quarter
Bank pays
b. Amount borrowed
Months to repay
Compounding periods/year
70,000,000
2.300%
4.00%
1.20%
45,000,000
12
4
Output Area:
a. EAR
b. Opportunity cost
Interest cost
Total interest
EAR
c. Interest cost
EAR
4.89%
$
48,870.93
$ 4,285,032.65
$ 4,333,903.59
9.63%
$ 6,665,606.35
9.52%
Chapter 18
Questions 15, 16
Input Area:
Q1
Q2
Sales (in millions)
210
Sales (1st quarter of next year)

A/R
Collection period
% of purchases for next Q sales
Suppliers paid
% of sales for expenses
Interest and dividends
Outlay in second Q
Minimum balance (in millions)
Borrowing rate
Invested securities
Beginning short-term borrowing
$
$
240
68
45
45%
36
25%
12
80
64
30
3%
2%
-
$
$
$
$
Q3
180
Q4
245
280
90.00
245.00
212.50
122.50
122.50
280.00
262.50
140.00
119.70
61.25
Output Area:
45-day collection period means sales collectiond = 1/2 current sales + 1/2 old sales
36-day payables period means payables = 3/5 current orders + 2/5 old orders
Q1: Cash flow
$
40.50
Q2: Cash flow
$
(40.55)
Q3: Cash flow
$
19.55
Q4: Cash flow
$
65.30
Beginning receivables
Sales
Collection of accounts
Ending receivables
Payment of accounts
Wages, taxes, and other expenses
Capital expenditures
Interest & dividends
Total cash collections

Net cash inflow
68.00
210.00
173.00
105.00
86.40
52.50
12.00
150.90
173.00
150.90
22.10
$
$
$
Cash Balance
Q1
64.00 $
22.10 86.10 $
30.00 56.10 $
105.00
180.00
195.00
90.00
98.55
45.00
80.00
12.00
235.55
12.00
192.95
195.00 $
235.55
(40.55) $
212.50
192.95
19.55
Q2
$
$
$
Q3
115.20
70.00
12.00
197.20
262.50
197.20
65.30
Q4

Net cash inflow
Ending cash balance
Minimum cash balance
Cumulative surplus (deficit)
$
$
86.10 $
40.55
45.55 $
30.00 15.55 $
45.55 $
19.55
65.10 $
30.00 35.10 $
65.10
65.30
130.40
30.00
100.40
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
Short-term Financial Plan

$
30.00 $
30.00 $
22.10 40.55
22.78
0.68
1.14
39.41
-
30.00 $
19.55
19.90 0.35
-
30.00
65.30
65.70
0.40
-
Q1:
Q2:
Q3:
Q4:
Ending cash balance

Minimum cash balance
Cumulative surplus (deficit)
$
$
30.00
30.00
-
$
$
30.00 $
30.00 $
30.00 $
30.00 $
30.00
30.00
-
Beginning short-term investments

Ending short-term investments
Beginning short-term debt
Ending short-term debt
$
$
$
$
34.00
56.78
-
$
$
$
$
56.78
17.37
-
19.90
-
17.37
83.46
-
excess funds at start of quarter of

Net cash cost
Q1
Q2
Q3
Q4
Cash generated by short-term financing
$34.00
$56.78
$17.37
$19.90
$
$
$
$
$
earns
earns
earns
earns
0.68
1.14
0.35
0.40
2.56
$
$
$
$
$0.68
$1.14
$0.35
$0.40
$
$
$
$
in income.
in income.
in income.
in income.
Chapter 18
Question 17
Input Area:
Line of credit
% for borrowing
Commitment fee
Compounding periods/year
b. Used credit
400,000,000
1.90%
4%
0.140%
4
130,000,000
Output Area:
a. For every dollar borrowed, you pay

$0.019
in interest
interest and get to use
$0.960
EAR
8.145%
b. Interest paid
Amount received
EAR
$ 10,165,163.62
$ 124,240,000.00
8.182%
Chapter 18
Question 18
Input Area:
Interest rate
Line of credit
10%
25,000,000
5%
$
$
$
2,500,000
1,250,000
21,250,000
Output Area:
Interest payment
Usable funds
EAR
11.76%
Chapter 19
Problems 1-12, Appendix 1-10
Input boxes in tan
Given data in blue
Calculations in red
Answers in green
equire that
xcel.
sis ToolPak"
Chapter 19
Question 1
Input Area:
Checks received
Value of checks
Days delayed
Days per month
80
156,000
4
30
Output:
Average daily float
20,800.00
Chapter 19
Question 2
Input Area:
Value of checks
Clearing time
Received payment
Clearing time
b. New clearing time
$
$
14,000
4
26,000
2
1
a. Disbursement float
Collection float
Net float
$
$
$
56,000
(52,000)
4,000
b. Disbursement float
Collection float
Net float
$
$
$
56,000
(26,000)
30,000
Output:
Chapter 19
Question 3
Input Area:
Value of checks per day

Clearing time
Interest rate
Days per month
19,000
3
0.019%
30
57,000
Output:
a. Collection float
b. The firm should pay no more than

$
57,000 to eliminate
the float.
c. Maximum daily charge
10.83
Chapter 19
Question 4
Input Area:
Check #1 value
Check #2 value
Clearing time #1
Clearing time #2
# of days per month
$
$
17,000
6,000
4
5
30
$
$
$
98,000
3,266.67
766.67
4.26
Output:
Total float
Average daily float
Average daily receipts
Weighted average delay
Chapter 19
Question 5
Input Area:
Average receipt
Decreased collection time
# Checks per day
Interest rate
Bank fee per day
108
2
8,500
0.016%
225
Output:
$
918,000
Average daily collections
PV
$
1,836,000
Cost
$
1,406,250
NPV
$
429,750.00
The firm should take the lockbox service.
Annual savings
Annual cost
Annual net savings
$
$
$
110,406.05
84,563.46
25,842.59
Chapter 19
Question 6
Input Area:
# Checks per day

% of check #1
Value of check #1
Average delay check #1
% of check #2
Value of check #2
Average delay check #2
d. Interest rate
e. Weighted average float
# of days per month
$
$
5,300
60%
55
2
40%
80
3
7%
1.50
30
Output:
a. Average daily float

$
28,620
On average, there is
$
28,620
that is uncollected and not available to the firm.
b. Total collections
Weighted average delay
Average daily float
$
$
344,500
2.49
28,620
c. The most the firm should pay is the total amount

$
28,620
of the average float or
d. Daily interest rate
Daily cost of float
e. Price to reduce float
0.01854%
5.31
17,225
Chapter 19
Question 7
Input Area:
Average # of payments per day

Average value of payment
Variable lockbox fee
Daily interest rate on MM securities
$
$
385
1,105
0.50
0.02%
3
Output:
a. PV
1,276,275
b. NPV
313,775
c. Net cash flow per day

Net cash flow per check
$
$
62.76
0.16
Chapter 19
Question 8
Input Area:
# days to receive checks

Required return
# of days per month
# of days per year
6
145,000
9%
3
30
365
Output:
a. Reduction in outstanding cash $
435,000
b. Average daily rate

Dollar return
0.0236%
102.72
c. Monthly rate
PV of increased collections
$
Assuming end of month payments:
$
Monthly price
0.7207%
434,897.32
3,134.45
Assuming payments at the beginning of the month

Monthly price
$
3,112.02
Chapter 19
Question 9
Input Area:
# days to clear checks

Interest-bearing account
# weeks for checks to disburse
7
93,000
0.015%
2
Output:
Annual interest earned
2,538.90
Chapter 19
Question 10
Input Area:

T-bill rate
Bank A and Bank B:
Collections per day
Collections accelerated
$
$
4,000,000
400,000
5%
$
$
2,000,000
250,000
1
Output:
NPV
$
Proceed with the new system.
Net savings
3,900,000
195,000
Chapter 19
Question 11
Input Area:
Average # of payments per day

Average value of payment
Variable lockbox fee
Annual interest rate on MM securities
Fixed charges per year
Reduction in collection time
# of days per year
$
$
$
750
980
0.35
7.00%
5,000
2
365
Output:
$
PV
Daily interest rate
NPV
$
The lockbox system should be accepted.
1,470,000
0.019%
54,015.17
NPV (With the fixed charge)

$
(17,413.40)
The lockbox system should not be accepted.
Chapter 19
Question 12
Input Area:
Annual fee
Variable costs per transaction
Reduction in collection
Average customer payment
T-bill rate
# of days per year
# weeks per year
$
$
$
20,000
0.10
1
5,300
5%
365
52
Output:
Daily interest rate

Customers per day
0.0134%
87.87
Chapter 19 - Appendix
Question 1
Input Area:
Increase
Decrease
No change
I
D
N
Output Area:
a. D: this will lower the trading costs, which will cause a decrease i
b. D: this will increase the holding costs, which will cause a decrea
c. I: this will increase the amount of cash that the firm has to hold in
accounts, so they will have to raise the target cash balance to m
d. D: if the credit rating improves, then the firm can borrow easier
cash balance and borrow if a cash shortfall occurs.
e. I: if the cost of borrowing increases, the firm will need to hold m
cash shortfalls as the borrowing costs become more prohibitiv
f. D: this depends somewhat on what the fees apply to, but of dir
compensating balance may be lowered, thus lowering the targe
hand, fees are charged to the number of transactions, then the
cash balance so they are not transferring money into the accou
ease in the target cash balance.

crease in the target cash balance.
o hold in non-interest bearing
e to meet this requirement.
ier, allowing it to lower the target
o hold more cash to protect against
ibitive.
direct fees are established, then the
arget cash balance. If, on the other
n the firm may wish to hold a higher
count as often.
Question 2
Input Area:
Annual interest rate

Fixed order cost
Total cash needed
$
$
6%
25
8,500
Output Area:
C*
2,661.45
The initial balance should be

$
2,661.45 , and whenever the
balance drops to $0, another
$
2,661.45 should be
transferred in.
Question 3
Input Area:
Avg. daily cash balance

Total cash needed
Interest rate
Replenishing cost
$
$
$
1,300
43,000
5%
8
Output Area:
Holding cost
$
65.00
Trading cost
$
132.31
Total cost
$
197.31
C*
$
3,709.45
They should change their average daily
$
1,854.72
cash balance to
, which would minimize their costs. The
$
185.47
new total costs are
Question 4
Input Area:
Total cash needed

Transfer amount
Interest rate
Replenishing cost
$
$
$
16,000
1,500
5%
25
Opportunity cost
Trading cost
$
$
37.50
266.67
The firm keeps

in cash because the
are higher than the
too little
trading costs
opportunity costs.
C*
Output Area:
4,000.00
Question 5
Input Area:
Cash holding
Cash needed per month
Broker fee
Interest rate
$
$
$
690,000
140,000
500
5.7%
Output Area:
$
1,680,000
Total cash
C*
$
171,679.02
The company should
invest
$
518,320.98 of its current
cash holdings in marketable securities
to bring the cash balance down to
the optimal level.
Over the rest of the year, sell securities
9.79
times.
Question 6
Input Area:
Lower limit
Upper limit
Target balance
$
$
$
43,000
125,000
80,000
Output Area:
The lower limit is the minimum balance allowed in the account,

balance allowed in the account. When the account balance drop
in marketable securities will be sold, and the proceeds deposited
account balance back to the target cash level. When the account
$45,000
of marketable securities will be purchased. T
back down to the target balance of
$80,000
nt, and the upper limit is the maximum

$37,000
e drops to the lower limit,
ited in the account. This moves the
ount balance rises to the upper limit, then
. This expenditure brings the cash level
Question 7
Input Area:
Order fixed cost

Opportunity cost
Standard deviation of CF
Lower limit
$
$
$
40
0.021%
70
1,500
Output Area:
4,900
Variance of cash flows

C*
U*
$
$
2,387.90
4,163.71
When the balance in the cash accounts drops to

$1,500
, the firm sells
$887.90
of the
marketable securities. The proceeds from the
sale are used to replenish the account back to
the optimal level of C*. Conversely, when the
upper limit is reached, the firm buys
$1,775.81
of marketable
securities. This expenditure lowers the cash
level back down to the optimal level of
$2,387.90
Question 8
Output Area:
As the variance increases, the upper limit and the spread will
unchanged. The lower limit does not change because it is an
management. As the variance increase, however, the amount
happens, the target cash balance, and therefore the upper lim
If the variance drops to zero, then the lower limit, the target ba
the same.
ill increase, while the lower limit remains

an exogenous variable set by
amount of uncertainty increases. When this
limit and the spread, will need to be higher.
balance, and the upper limit will al be
Question 9
Input Area:
Variance of cash flows

Opportunity cost
Lower limit
Order fixed cost
$
$
$
890,000
7%
160,000
300
Output Area:
0.0185%
Daily interest rate

C*
U*
$
$
170,260.47
190,781.41
Question 10
Input Area:
Target cash balance

Toal cash for year
Order cost
$
$
$
2,700
28,000
10
Output Area:
Interest rate
7.68%
Chapter 26
Problems 1-15
Input boxes in tan
Given data in blue
Calculations in red
Answers 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"
ak"
Chapter 26
Question 1
Input Area:
Cash offer
Value of company
$
$
538,000,000
495,000,000
43,000,000
Output Area:
Minimum estimated value
Chapter 26
Question 2
Input Area:
Merger premium
$
$
5
Firm X
74,000
30,000
$
$
Firm Y
19,000
20,000
$
$
53
17
$
$
16
6
Pooling of interest:
Equity = Assets
630,000
Purchase method:
Asset from X (book value)
Asset from Y (market value)
Purchase price of Y
Goodwill
Total assets XY = Total equity XY
$
$
$
$
$
510,000
320,000
420,000
100,000
930,000
Total earnings
Shares outstanding
Per-share values
Market
Book
Output Area:
Chapter 26
Question 3
Input Area:
Current assets
Net fixed assets
Total
Current assets
Net fixed assets
Total
$
$
$
Meat Co.
9,000 Current liabilities
32,000 Long-term debt
Equity
41,000
Loaf, Inc.
Equity
10,100
5,800
9,300
25,900
41,000
1,800
2,100
6,200
10,100
Output Area:
Current assets
Net fixed assets
Total
Meat Co. - Post merger

Equity
51,100
7,600
11,400
32,100
51,100
Chapter 26
Question 4
Input Area:
Meat Co.
Equity
41,000
$
$
$
$
5,800
9,300
25,900
41,000
Loaf, Inc.
Equity
10,100
$
$
$
$
1,800
2,100
6,200
10,100
Market value of Loaf's assets
16,100
Market value of Loaf's debt
3,900
Goodwill
6,800
7,600
30,400
25,900
63,900
Current assets
Net fixed assets
Total
Current assets
Net fixed assets
Total
$
$
$
$
$
$
Fair market value

Paid
$
$
12,500
19,000
Output Area:
Current assets
Net fixed assets
Goodwill
Total
Meat Co. - Post Merger

6,800 Equity
63,900
Chapter 26
Question 5
Input Area:
Current assets
Other assets
Net fixed assets
Total
Current assets
Other assets
Net fixed assets
Total
Silver Enterprises
900 Long-term debt
12,100 Equity
16,400
All Gold Mining
480 Long-term debt
6,300 Equity
7,980
2,300
6,500
7,600
16,400
1,100
6,880
7,980
Output Area:
Current assets
Other assets
Net fixed assets
Total
Silver Enterprises - Post Merger

18,400 Equity
$
24,380
$
3,400
6,500
14,480
24,380
Chapter 26
Question 6
Input Area:
Current assets
Other assets
Net fixed assets
Total
Current assets
$
Other assets
Net fixed assets
Total
$
Market value of fixed assets
New long-term debt
Silver Enterprises
900 Long-term debt
12,100 Equity
16,400
All Gold Mining
480 Long-term debt
6,300 Equity
7,980
$
7,900
$
11,000
2,300
6,500
7,600
16,400
1,100
6,880
7,980
Output Area:
Current assets
Other assets
Net fixed assets
Goodwill
Total
Silver Enterprises - Post Merger

$
20,000 Equity
2,520
$
28,500
3,400
17,500
7,600
28,500
Chapter 26
Question 7
Input Area:
After-tax annual cash flow

Teller market value
Penn market value
Discount rate
Stock offer
Cash offer
$
$
$
2,400,000
58,000,000
107,000,000
10%
40%
73,000,000
a. V*k
Cash cost
Equity cost
$
$
$
82,000,000
73,000,000
75,600,000
b. NPV cash
NPV stock
$
$
9,000,000
6,400,000
Output Area:
c. Acquire the company for cash.
Chapter 26
Question 8
Input Area:
Jolie
Price-earnings ratio
Shares outstanding
Earnings
Shareholders receive
Pitt
10.40
92,337
245,000
1
Output Area:
a. EPS
$
4.338
The market price will remain unchanged since
it is a zero NPV acquisition.
$
82.78
Current share price
New P/E
19.09
b. V*
Cost of acquisition
$
$
2,548,000
2,548,000
DV
$
(0.00)
Although there is no economic value to the
takeover, it is possible that Pitt is
motivated to purchase Jolie for other
than financial reasons.
$
for
22.00
194,000
730,000
3
Chapter 26
Question 9,10
Input Area:
Shares outstanding
Share price
Synergy benefits
Acquisition price
d. Shareholders receive
$
$
$
Firm B
3,400
43.00
6,000
20.50
1
Output Area:
a. NPV
2,250
b. New share price
43.66
c. Merger premium
3,750
d. New shares of B
VBT
Share price
$
$
750
179,200.00
43.18
e. NPV
614.46
Value of cash offer

$
20.50
Value of share offer
$
9.00
The shareholders are better off with the
cash offer
because they
receive a higher value for their shares.
Indifferent exchange ratio
0.4695
for
Firm T
1,500
18.00
Chapter 26
Question 11
Input Area:
Total earnings
Shares outstanding
Price per share
$
$
Firm A
1,400
500
34
Acquisition price
11
2,200
64.71
3.36
12.14
40.86
Output Area:
Cost
Shares given up by A
a. EPS
b. Old P/E
New price
c. P/E
10.11
d. Price
$
32.94
P/E
9.79
At the current acquisition price, this is a
negative NPV
acquisition.
Firm B
$
$
500
200
8
Chapter 26
Question 12
Output Area:
NPV
= VB* - cost
= DV + VB - cost
= DV - (cost - VB)
= DV - merger premium
Chapter 26
Question 13
Input Area:
Incremental aftertax cash flows

Flash-in-the-Pan market value
Fly-by-Night market value
Discount rate
Stock offer
Cash offer
$
$
$
450,000
14,000,000
31,000,000
8%
35%
18,500,000
a. Synergy value
5,625,000
b. Value to acquirer
19,625,000
c. Cost of cash acquisition

Cost of stock acquisition
$
$
18,500,000
17,718,750
d. NPV of cash acquisition

NPV of stock acquisition
$
$
1,125,000
1,906,250
Output Area:
e. Aquire the company for stock.
Chapter 26
Question 14
Input Area:
Harrod's market value

Harrod's shares outstanding
Selfridge market value
Selfridge shares outstanding
Combined firm value
Merger premium
a. Shares offered
b. Cash offer
200,000,000
9,000,000
70,000,000
8,000,000
300,000,000
10,000,000
2,500,000
90,000,000
Output Area:

New stock price
b. Fractional ownership of target shareholders
New shares issued
Exchange ratio
11,500,000
26.09
30.00%
3,857,143
0.4821
to 1
Chapter 26
Question 15
Input Area:
Foxy
Price-earnings ratio
Shares outstanding
Earnings
Dividends
Analyst growth rate
Management growth rate
c. Cash offer
e. Shares offered
g. Consultant growth rate
$
$
15.50
1,200,000
3,600,000
810,000
5%
7%
18.00
200,000
6%
Output Area:
a. Pulitzer EPS
Pulitzer stock price
Pulitzer DPS
Equity required return
P with new growth rate
VT*
$
$
$
$
$
1.36
15.64
0.62
9.16%
30.68
15,339,408.63
b. Gain
7,519,408.63
c. NPV
6,339,408.63
d. Highest bid price
30.68
e. Market value of Foxy

$
55,800,000
PC
$
50.81
NPV
$
5,176,635.97
The acquisition should go forward.
The company should offer cash.
g. P with new growth rate
$
20.78
VP*
$
10,390,828.95
Gain
$
2,570,828.95
NPV cash
$
1,390,828.95
PCombined
$
47.28
NPV stock
$
934,996.25
The acquisition should go forward.
$
$
Pulitzer
11.50
500,000
680,000
310,000
The company should offer cash.

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Chapter 15

New market value

a. Maximum subscription price = current share price

b. Number of new shares

If you receive 1000 shares each, the profit

Proceeds from sale

Proceeds from sale

Company price per share

Net amount raised

Number of rights needed

If the share price after the offering is the same,

Rights offer total

Net proceeds to company

Rights offer per share

You can create an immediate profit on

Dividend per share

a. New shares outstanding

b. New shares outstanding

New shares outstanding

Market Value Balance Sheet

The equity and cash accounts will decline by:

Market Value Balance Sheet

Market Value Balance Sheet

Repurchasing the shares will reduce

Market Value Balance Sheet

New shares outstanding

New shares outstanding

The equity accounts are unchanged except

Stock price today

Equal dividend amount

Stock price in one year

You need to sell

Dividend desired in year 1

Stock price in one year

You will buy

Your dividend in year 2 is

c. A share repurchase would seem to be the

a. Personal tax rate

b. Personal tax rate

c. Personal tax rate

d. Corporate (with 70% exclusion)

If the company invests the money now:

If the company pays a dividend now:

Individual invests in preferred stock:

a. Individual tax rate

b. Individual tax rate

Book net worth

45 -day collection period

60 -day collection period

Projected sales increase

a, The payable period is zero since payment is made immediately.

b. If the payables period is

With a payables period of

Beginning cash balance

Balance Sheet (in $ tho

a. Compensating balance amount

Sales (in millions)

Sales (1st quarter of next year)

Total cash collections

Beginning cash balance

Target cash balance

Short-term Financial Plan

Ending cash balance

Beginning short-term investments