Unit 1

UNITACTIVITIES-TEXTBOOKPROBLEMS-FORMULASHELLS2.xls

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UNIT 1- ANSWERS

UNIT 1: TEXTBOOK PROBLEMS
CHAPTER 2: PROBLEM 1
Current Assets	$7,300
Net Fixed Assets	$26,200
Current Liabilities	$5,700
Long-Term Debt	$12,900
Shareholder Equity =
Net Working Capital =
CHAPTER 2: PROBLEM 2
	Income Statement
Sales	$675,300
Costs	$297,800
Depreciation Expense	$45,100
EBIT	$0
Interest Expense	$20,700
EBT	$0
Taxes @ 35%	$0
Net Income =	$356,800	Havings issues here I think I should do 35% of this #.
Cash Dividends	$62,000
Addition to Retained Earnings =	$0
Tax Rate =	35%
CHAPTER 2: PROBLEM 4
Taxable Income	$315,000
Table 2.3
Taxable Income	Taxable Income (cont)	Tax Rate
0	50,000	15%
50,001	75,000	25%
75,001	100,000	34%
100,001	335,000	39%
335,001	10,000,000	34%
10,000,001	15,000,000	35%
15,000,001	18,333,333	38%
18,333,334	+	35%
Income Taxes =	$0
Average Tax Rate =	0.00%
Marginal Tax Rate =	0%	(Note: No formula needed. Just input the correct rate from the Tax Rate column)
CHAPTER 2: PROBLEM 5
Sales	$29,200
Costs	$10,400
Depreciation Expense	$1,800
EBIT	$0
Interest Expense	$1,050
EBT	$0
Taxes @ 40%	$0
Net Income	$0
Tax Rate	40%
Operating Cash Flow =	$0
CHAPTER 3: PROBLEM 2
Debt/Equity Ratio	0.65
Return on Assets	9.80%
Total Equity	$850,000
Equity Multiplier =	0.00
Return on Equity =	0.00%
Net Income =	$0
CHAPTER 3: PROBLEM 6
ROE	16%
Payout Ratio	25%
Retention Ratio	0.00%	(Note: You must calculate the retention ratio first then the sustainable growth rate)
Sustainable Growth Rate =	0.00%

UNIT 2- ANSWERS

UNIT 2: TEXTBOOK PROBLEMS
CHAPTER 4: PROBLEM 2 (a thru c)
	A.	B.	C.
Present Value	3,200	3,200	3,200
Interest Rate	6%	8%	6%
Number of Years	10	10	20
Future Value =	$5,731	$6,909	$10,263
CHAPTER 4: PROBLEM 3
	A.	B.	C.	D.
Future Value =	15,451	51,557	886,073	550,164
Interest Rate	7%	9%	14%	16%
Number of Years	12	8	19	24
Present Value =	$6,860	$25,875	$73,498	$15,614
CHAPTER 4: PROBLEM 4
	A.	B.	C.	D.
Present Value =	217	432	41,000	54,382
Future Value	307	896	162,181	483,500
Number of Years	3	10	13	26
Interest Rate	12.26%	7.57%	11.16%	8.77%
CHAPTER 4: PROBLEM 5
	A.	B.	C.	D.
Present Value =	625	810	18,400	21,500
Future Value	1,284	4,341	402,662	173,439
Interest Rate	9%	11%	7%	10%
Number of Years (or Periods)	8.35	16.09	45.61	21.91
CHAPTER 4: PROBLEM 11
Discount Rate	5%	13%	18%
Year 1:	$960	$960	$960
Year 2:	$840	$840	$840
Year 3:	$1,935	$1,935	$1,935
Year 4:	$1,350	$1,350	$1,350
Present Value @ 5%, 13%, and 18% =	$4,458	$3,676	$3,291	(Note: Use the built-in NPV formula in Excel)
CHAPTER 5: PROBLEM 2
A.
Settlement	1/1/10	(Think of Settlement as the beginning of the duration of the bond)
Maturity	12/31/35	(Think of Maturity as the end of the duration of the bond)
Rate	7%	(Coupon Rate)
YTM	7%	(Yield to Maturity or Required Rate of Return)
Redemption	100	(Bonds Face Value, Par Value, or Fair Price; Note that is $100, not $1,000. You make the adjustments by multiplying the answer by 10)
Frequency	2	(Coupon payments are semiannual, so you put in a 2. If they are annual, then you input a 1)
Basis		(Always leave it blank)
Bond Price	100.00	(The answer. But you need to multiply it by 10 to get the actual bond price)
Multiply by 10	1000.00	(Microsoft gives the bond price in 2 digits. You need to multiply it by 10 to get the actual bond price)
CHAPTER 5: PROBLEM 3
Settlement	1/1/10	(Think of Settlement as the beginning of the duration of the bond)
Maturity	12/31/25	(Think of Maturity as the end of the duration of the bond)
Rate	6.8	(Coupon Rate)
Pr	105	(The bonds price per $100 face value)
Redemption	100	(Bonds Face Value, Par Value, or Fair Price; Note that is $100, not $1,000)
Frequency	2	(Coupon payments are semiannual, so you put in a 2. If they are annual, then you input a 1)
Basis:		(Always leave it blank)
YTM	641.27%
CHAPTER 6: PROBLEM 2
Dividend Payment	$1.99
Dividend Growth Rate	4.50%
ZYX Stock Price	$31
Required Return =	6.71%
CHAPTER 6: PROBLEM 4
Dividend	$2.65
Dividend increase per year	4.75%
Required Return (Return on Investment)	11%
Stock Price =	$24.04

UNIT 3- ANSWERS

UNIT 3: TEXTBOOK PROBLEMS
CHAPTER 7: PROBLEM 1b
	Project A	Project B
Discount Rate	15%	15%
Year 0	($14,500)	($9,800)
Year 1	$8,500	$4,700
Year 2	$6,800	$4,200
Year 3	$2,800	$4,100
NPV =	($125.87)	$158.58	(Note: You will choose the project that has the highest NPV since it creates the most wealth)
CHAPTER 7: PROBLEM 2
Year	A.	B.	C.
0	$3,200	$4,600	$7,900
1	$825	$825	$825
2	$825	$825	$825
3	$825	$825	$825
4	$825	$825	$825
5	$825	$825	$825
6	$825	$825	$825
7	$825	$825	$825
8	$825	$825	$825
Payback Period =	3.88	5.58	9.58
CHAPTER 7: PROBLEM 8
Year	Project A	Project B
0	($5,200)	($3,600)
1	1,800	1,300
2	3,200	2,100
3	2,200	1,800
IRR =	17.57%	19.72%
CHAPTER 7: PROBLEM 9
Discount Rate	15%
Year
0 (Initial Cost)	($185,000)	$185,000
1	62,000
2	62,000
3	62,000
4	62,000
5	62,000
6	62,000
7	62,000
First find the NPV	$14,374	(Use the built-in NPV formula in Excel but exclude using the Year 0 cash outflow)
Now calculate the Profitability Index	(1.00)	(Use the positive amount of the initial cost in cell C44 in the formula. You would only accept the project if the Profitability Index is above 1)
CHAPTER 8: PROBLEM 1
Cost of Souffle Maker	$27,000	($27,000)
Economic Life	6	years
# of Souffles produced per year	2,300
Cost to make each Souffle	$2
Price of each Souffle	$7
Discount Rate	14%
Tax Rate	34%
Step 1: First calculate the Operating Cash Flow	$8,220
Step 2: Place the answer you get for your Operating Cash Flow in the year 1 thru year 6 cells below
Year 1	$8,220
Year 2	$8,220
Year 3	$8,220
Year 4	$8,220
Year 5	$8,220
Year 6	$8,220
Step 3: Now find the NPV. Be sure to include the initial cost by using cell C58 as it is negative
NPV =	$4,964.85	(You will accept the project if the NPV is positive)

UNIT 4- ANSWERS

UNIT 4: TEXTBOOK PROBLEMS
CHAPTER 10: PROBLEM 1
Beginning Stock Price	$73
Ending Stock Price	$82
Dividend	$1.20
Percentage Total Return =	13.97%
CHAPTER 10: PROBLEM 12
Stock Return the past 5 years	-18.35%	14.72%	28.47%	6.48%	16.81%
Holding Period Return for the Stock =	49.67%	(Note: Subtract your answer by 1 to obtain the correct percentage answer)
CHAPTER 10: PROBLEM 14
Price of Preferred Stock Last Year	$94.83
Current Price of Preferred Stock	$96.20
Preferred Stock Dividend	4.20%
Face Value of Preferred Stock	$100
Total Return =	132.62
CHAPTER 10: PROBLEM 15
Stock Price 3 Months Ago	$41.75
Current Stock Price	$44.07
First calculate the total return for the 3 months	55.24
Then calculate the APR by multiplying the answer in cell B35 by 4	220.95
EAR (Effective Annual Rate) =	17.89%
CHAPTER 11: PROBLEM 2
Stock A	$3,900
Stock B	$5,700
Total Value of the Portfolio	$9,600
Expected Return on Stock A	9.50%
Expected Return on Stock B	15.20%
Expected Return on the Portfolio =	48.98%
CHAPTER 11: PROBLEM 12
Beta	0.85
Expected Return on the Market	11.50%
Risk-Free Rate	3.40%
Expected Return on the Stock =	85.275400%
CHAPTER 12: PROBLEM 1
Beta	1.21
Risk-Free Rate	3.50%
Expected Return on the Market	11%
Cost of Equity =	121.82500%
CHAPTER 12: PROBLEM 5
Common Stock weight	70%
Debt weight	30%
Cost of Equity	13%
Cost of Debt	6%
Tax Rate	35%
WACC =	10.27%

UNIT 5- ANSWERS

UNIT 5: TEXTBOOK PROBLEMS
CHAPTER 16: PROBLEM 1
Dividend	$6.30
Dividend Tax	25%
Stock Price	$83
Step 1: Calculate the After-Tax Dividend	$4.73
Step 2: Ex-Dividend Price =	$1.58
CHAPTER 16: PROBLEM 4 (a thru d)
# of shares of stock outstanding	270,000
Stock Price	$73
A.	$43.80	5
		3
B.	$63.48	1
		1.15
C.	$51.23	1
		1.425
D.	$41.71	4
		7
CHAPTER 16: PROBLEM 7
Stock Dividend	25%
# of shares of stock outstanding	25,000
Market Value Balance Sheet:
Cash	$145,000
Fixed Assets	$598,000
Total	$743,000
Debt	$127,000
Equity	$616,000
Total	$743,000
Find the market price of stock by using the equity and # of shares outstanding	$24.64
New shares outstanding =	6,250
New Stock price =	$253.66
CHAPTER 16: PROBLEM 16a
Dividend	$2.05
Payout Ratio	40%
Earnings Per Share	$6.20
Adjustment Rate	0.3
Dividend 1 year from now =	$2.18

UNIT 6- ANSWERS

UNIT 6: TEXTBOOK PROBLEMS
CHAPTER 18: PROBLEM 2
Net Worth	$13,205
Long-term Debt	$8,200
Net Working Capital (Excluding Cash)	$3,205
Fixed Assets	$17,380
Current Liabilities	$1,630
Cash =	$6,580
Net Working Capital (Including Cash) =	$9,785
Current Assets =	$12,990
CHAPTER 19: PROBLEM 1 (a thru d)
# of shares outstanding	490,000
Current Stock Price	$75
# of new shares outstanding in the future (rights offering)	80,000
Price of New Stock (or rights)	$71
A. New Market Value of the Company =	$42,430,000
B. # of Rights Needed =	$530.38	rights per new share
C. Ex-Rights Price =	$3.63
D. Value of the Right =	$526.74
CHAPTER 20: PROBLEM 4a
Spot exchange rate for the Canadian Dollar	$1.04
6 month forward rate	$1.06
U.S. Dollar	$1.00
One Canadian Dollar is worth	$1.0192	(If amount is below 1, then the U.S. Dollar is worth more and vice versa)
CHAPTER 20: PROBLEM 5a
Japanese Yen Exchange Rate=	89	=	$1
British Pound Exchange Rate=	1	=	$1.62
Cross Rate in terms of Yen per Pound =	$54.94