INCOME STATEMENTS

Sales
Costs except depreciation
EBITDA
Depreciation
EBIT
Less interest (INT)
Earnings before taxes (EBT)
Taxes (40%)
Income before pref. dividends
Preferred dividends
Net income for common (NI)
Dividends to common (DIVs)
Add. to retained earnings:
(NI DIVs)
Shares of common stock
Earnings per share (EPS)
Dividends per share (DPS)
Price per share (P)
Cost of Capital

40.00%

2009

2010

$900,000.0
774,000.0
126,000.0
31,500.0
94,500.0
8,600.0
$85,900.0
34,360.0
$51,540.0
0.0
$51,540.0

$945,000.0
812,700.0
132,300.0
33,100.0
99,200.0
10,470.0
$88,730.0
35,492.0
$53,238.0
0.0
$53,238.0

$41,230.0

$43,300.0

$10,310.0
15,000
$3.44
$2.75

$9,938.0
15,000
$3.55
$2.89
$65.00

8.00%

BALANCE SHEETS
Assets
Cash
ST Investments
Accounts receivable
Inventories
Total current assets
Net plant and equip.
Total assets

2009

2010

$45,000.0
3,600.0
270,000.0
135,000.0
$453,600.0
315,000.0
$768,600.0

$47,250.0
3,800.0
283,500.0
141,750.0
$476,300.0
330,750.0
$807,050.0

Liabilities and equity

Accounts payable
Accruals
Notes payable
Total current liab.
Long-term bonds
Total liabilities
Preferred stock
Common stock
Retained earnings
Total common equity
Total liab. & equity

$90,000.0
45,000.0
9,000.0
$144,000.0
90,000.0
$234,000.0
0.0
444,600.0
90,000.0
$534,600.0
$768,600.0

$94,500.0
47,250.0
26,262.0
$168,012.0
94,500.0
$262,512.0
0.0
444,600.0
99,938.0
$544,538.0
$807,050.0

Net operating working capital

2009
2010
Total net operating capital
2009
2010

Investment in total net operat

2010

Net operating profit after taxe

2010
Free cash flow
2010
Return on invested capital
2010

t operating working capital for 2009 & 2010

NOWC
NOWC

al net operating capital

TOC
TOC

$318,600
$334,550

$633,600
$665,300

estment in total net operating capital

Inv. In TOC

$31,700

t operating profit after taxes

NOPAT
$59,520

e cash flow
FCF

turn on invested capital

ROIC

$27,820

8.95%

Inputs
Equipment cost
Net WC/Sales
First year sales (in units)
Sales price per unit
Variable cost per unit
Nonvariable costs
Depreciation and Amortization Schedule
Year
Equipment Depreciation Rate
Equipment Depreciation Amount
Ending Bk Value

$10,000
10.00%
1,000
$24.00
$17.50
$1,000

Market value of equipment at Year 4

Tax rate
WACC
Inflation

Initial Cost

Years
2

1
20.0%
$2,000

32.0%
$3,200

3
19.0%
$1,900

$10,000

Net Salvage Values, in Year 4

Estimated Market Value in Year 4
Book Value in Year 4
Expected Gain or Loss
Taxes paid or tax credit
Net cash flow from salvage
Projected Net Cash Flows
Initial Outflow
Equipment

($10,000)

Operating Cash Flows

Units sold
Sales price
Variable costs
Sales revenue
Variable costs
Nonvariable operating costs
Depreciation (equipment)
Oper. income before taxes (EBIT)
Taxes on operating income (40%)
After-tax operating income
Add back depreciation
Operating cash flow
Required level of net working capital
Required investment in NWC

1,000
$24.00
$17.50

1,000
$24.72
$18.03

$24,000
17,500
1,000
2,000
$3,500
1,400
$2,100
2,000
$4,100

$24,720
18,025
1,030
3,200
$2,465
986
$1,479
3,200
$4,679

$2,400
($2,400)

$2,472
($72)

$2,546
($74)

($12,400)

$4,028

$4,605

Terminal Year Cash Flow

Net salvage value
Net Cash Flows
NPV
IRR
MIRR

$3,463
21.09%
16.99%

f equipment at Year 4

s
4
12.0%
$1,200
$1,700

$500
40.00%
10.00%
3.00%

Accum.
Dep.

$8,300

Equipment
$500
1,700
-1,200
-480
$980

1,000
$25.46
$18.57

1,000
$26.23
$19.12

$25,462
18,566
1,061
1,900
$3,935
1,574
$2,361
1,900
$4,261

$26,225
19,123
1,093
1,200
$4,810
1,924
$2,886
1,200
$4,086

$2,623
($76)

$0
$2,623

980
$4,185

$7,689

P0
Net Ppf
Dpf
D0
g
B-T rd
Skye's beta
Market risk premium, RPM
Risk free rate, rRF
Target capital structure from debt
Target capital structure from preferred stock
Target capital structure from common stock
Tax rate
Flotation cost for common

$50.00
$30.00
$3.30
$2.10
7.00%
10.00%
0.83
6.00%
6.50%
45.00%
5.00%
50.00%
35.00%
10.00%

Cost of debt:

6.50%

Cost of preferred stock (including flotation costs):

11.00%

Cost of common equity, DCF (ignoring flotation costs):

11.49%

Cost of common equity, CAPM:

11.48%

Cost of new stock using the DCF model

11.99%

Cost of new common stock based on the CAPM

11.98%
(Hint: Find the difference between re and rs as determined by the DCF method and add that differential to the CAPM va

WACC

9.22%

at differential to the CAPM value for rs.)

a. Find the FV of $1,000 invested to earn 10% annually 5 years from now. Use excel functions to solve.
N
5

Inputs
Output

I/Y
10.00%

PV
($1,000.00)

PMT

FV
$1,610.51

b. Now create a table that shows the FV at 0%, 5%, and 20% for 0, 1, 2, 3, 4, and 5 years.
Then create a graph with years on the horizontal axis and FV on the vertical axis to display your results starting on Cel

Years (D10):
0
1
2
3
4
5

0.00%
$1,000.00
$1,000.00
$1,000.00
$1,000.00
$1,000.00
$1,000.00

Interest Rate (D9)

5.00%
20.00%
$1,000.00
$1,000.00
$1,050.00
$1,200.00
$1,102.50
$1,440.00
$1,157.63
$1,728.00
$1,215.51
$2,073.60
$1,276.28
$2,488.32

c. Find the PV of $1,000 due in 5 years if the discount rate is 10% per year. Use excel functions to solve.

Inputs
Output

N
5

I/Y
10.00%

PV

PMT

FV
($1,000.00)

$620.92

d. A security has a cost of $1,000 and will return $2,000 after 5 years. What rate of return does the security provide?

Inputs
Output

N
5

I/Y

PV
($1,000.00)

PMT

FV
$2,000.00

14.87%

e. Suppose Californias population is 30 million people, and its population is expected to grow by 2% per year.
How long would it take for the population to double?
N
Inputs
Output

I/Y
2.00%

PV
-30.00

PMT

FV
60.00

35.00

f. Find the PV of an ordinary annuity that pays $1,000 at the end of each of the next 5 years if
the interest rate is 15%. Then find the FV of that same annuity.

Inputs
Output

Inputs
Output

N
5

I/Y
15.00%

PV

PMT
$1,000.00

FV

PMT
$1,000.00

FV

($3,352.16)
N
5

I/Y
15.00%

PV

($6,742.38)

g. How would the PV and FV of the above annuity change if it were an annuity due rather than an
ordinary annuity?

N
5

Inputs
Output

I/Y
15.00%

PV

PMT
$1,000.00

FV

PMT
$1,000.00

FV

($3,854.98)
N
5

Inputs
Output

I/Y
15.00%

PV

($7,753.74)

h. What would the FV and the PV for parts a and c be if the interest rate were 10% with
semiannual compounding rather than 10% with annual compounding?
Annual
Inputs
Output

N
5

Annual
Inputs
Output

N
5

I/Y
10.00%

PV
($1,000.00)

PMT

FV
$1,610.51

I/Y
10.00%

PV

PMT

FV
($1,000.00)

$620.92

i. Find the PV and FV of an investment that makes the following end-of-year payments. The
interest rate is 8%.
Year
1
2
3

Payment
100
200
400

Rate

8.00%
NPV

Year
1
2
3

$581.59

Payment
100
200
400
Sum =

FV (Yr 3)
$116.64
$216.00
$400.00
$732.64

j. Suppose you bought a house and took out a mortgage for $50,000. The interest rate is 8%, and you must amortiz
loan over 10 years with equal monthly payments. Set up a monthly amortizating schedule that shows the monthly pay
and the amount of each payment that repays the principal and the amount that constitutes interest expense to the bor
and interest income to the lender.

The monthly payment would be:

10 Years
120 Months
Month
Beg. Amt.
Pmt
1 $50,000.00
($606.64)

-$606.64
8.00% Annual Interest
0.67% Monthly Interest
Interest
Principal
End. Bal.
($333.33)
($273.30) $49,726.70

2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56

$49,726.70
$49,451.57
$49,174.61
$48,895.80
$48,615.13
$48,332.60
$48,048.18
$47,761.86
$47,473.63
$47,183.49
$46,891.41
$46,597.38
$46,301.39
$46,003.43
$45,703.48
$45,401.53
$45,097.57
$44,791.58
$44,483.55
$44,173.47
$43,861.32
$43,547.10
$43,230.77
$42,912.34
$42,591.78
$42,269.09
$41,944.25
$41,617.24
$41,288.05
$40,956.66
$40,623.07
$40,287.25
$39,949.20
$39,608.89
$39,266.31
$38,921.44
$38,574.28
$38,224.81
$37,873.00
$37,518.85
$37,162.34
$36,803.45
$36,442.17
$36,078.48
$35,712.36
$35,343.81
$34,972.79
$34,599.31
$34,223.33
$33,844.85
$33,463.84
$33,080.30
$32,694.19
$32,305.52
$31,914.25

($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)

($331.51)
($329.68)
($327.83)
($325.97)
($324.10)
($322.22)
($320.32)
($318.41)
($316.49)
($314.56)
($312.61)
($310.65)
($308.68)
($306.69)
($304.69)
($302.68)
($300.65)
($298.61)
($296.56)
($294.49)
($292.41)
($290.31)
($288.21)
($286.08)
($283.95)
($281.79)
($279.63)
($277.45)
($275.25)
($273.04)
($270.82)
($268.58)
($266.33)
($264.06)
($261.78)
($259.48)
($257.16)
($254.83)
($252.49)
($250.13)
($247.75)
($245.36)
($242.95)
($240.52)
($238.08)
($235.63)
($233.15)
($230.66)
($228.16)
($225.63)
($223.09)
($220.54)
($217.96)
($215.37)
($212.76)

($275.13)
($276.96)
($278.81)
($280.67)
($282.54)
($284.42)
($286.32)
($288.23)
($290.15)
($292.08)
($294.03)
($295.99)
($297.96)
($299.95)
($301.95)
($303.96)
($305.99)
($308.03)
($310.08)
($312.15)
($314.23)
($316.32)
($318.43)
($320.56)
($322.69)
($324.84)
($327.01)
($329.19)
($331.38)
($333.59)
($335.82)
($338.06)
($340.31)
($342.58)
($344.86)
($347.16)
($349.48)
($351.81)
($354.15)
($356.51)
($358.89)
($361.28)
($363.69)
($366.11)
($368.56)
($371.01)
($373.49)
($375.98)
($378.48)
($381.01)
($383.55)
($386.10)
($388.68)
($391.27)
($393.88)

$49,451.57
$49,174.61
$48,895.80
$48,615.13
$48,332.60
$48,048.18
$47,761.86
$47,473.63
$47,183.49
$46,891.41
$46,597.38
$46,301.39
$46,003.43
$45,703.48
$45,401.53
$45,097.57
$44,791.58
$44,483.55
$44,173.47
$43,861.32
$43,547.10
$43,230.77
$42,912.34
$42,591.78
$42,269.09
$41,944.25
$41,617.24
$41,288.05
$40,956.66
$40,623.07
$40,287.25
$39,949.20
$39,608.89
$39,266.31
$38,921.44
$38,574.28
$38,224.81
$37,873.00
$37,518.85
$37,162.34
$36,803.45
$36,442.17
$36,078.48
$35,712.36
$35,343.81
$34,972.79
$34,599.31
$34,223.33
$33,844.85
$33,463.84
$33,080.30
$32,694.19
$32,305.52
$31,914.25
$31,520.37

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
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111

$31,520.37
$31,123.87
$30,724.73
$30,322.92
$29,918.43
$29,511.25
$29,101.36
$28,688.73
$28,273.35
$27,855.20
$27,434.26
$27,010.52
$26,583.95
$26,154.54
$25,722.27
$25,287.11
$24,849.05
$24,408.07
$23,964.16
$23,517.28
$23,067.42
$22,614.57
$22,158.69
$21,699.78
$21,237.81
$20,772.76
$20,304.60
$19,833.33
$19,358.91
$18,881.33
$18,400.57
$17,916.60
$17,429.41
$16,938.97
$16,445.26
$15,948.25
$15,447.94
$14,944.29
$14,437.28
$13,926.89
$13,413.10
$12,895.88
$12,375.21
$11,851.08
$11,323.45
$10,792.30
$10,257.61
$9,719.35
$9,177.51
$8,632.06
$8,082.97
$7,530.21
$6,973.78
$6,413.63
$5,849.75

($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)

($210.14)
($207.49)
($204.83)
($202.15)
($199.46)
($196.74)
($194.01)
($191.26)
($188.49)
($185.70)
($182.90)
($180.07)
($177.23)
($174.36)
($171.48)
($168.58)
($165.66)
($162.72)
($159.76)
($156.78)
($153.78)
($150.76)
($147.72)
($144.67)
($141.59)
($138.49)
($135.36)
($132.22)
($129.06)
($125.88)
($122.67)
($119.44)
($116.20)
($112.93)
($109.64)
($106.32)
($102.99)
($99.63)
($96.25)
($92.85)
($89.42)
($85.97)
($82.50)
($79.01)
($75.49)
($71.95)
($68.38)
($64.80)
($61.18)
($57.55)
($53.89)
($50.20)
($46.49)
($42.76)
($39.00)

($396.50)
($399.15)
($401.81)
($404.49)
($407.18)
($409.90)
($412.63)
($415.38)
($418.15)
($420.94)
($423.74)
($426.57)
($429.41)
($432.27)
($435.16)
($438.06)
($440.98)
($443.92)
($446.88)
($449.86)
($452.86)
($455.87)
($458.91)
($461.97)
($465.05)
($468.15)
($471.27)
($474.42)
($477.58)
($480.76)
($483.97)
($487.19)
($490.44)
($493.71)
($497.00)
($500.32)
($503.65)
($507.01)
($510.39)
($513.79)
($517.22)
($520.67)
($524.14)
($527.63)
($531.15)
($534.69)
($538.25)
($541.84)
($545.45)
($549.09)
($552.75)
($556.44)
($560.15)
($563.88)
($567.64)

$31,123.87
$30,724.73
$30,322.92
$29,918.43
$29,511.25
$29,101.36
$28,688.73
$28,273.35
$27,855.20
$27,434.26
$27,010.52
$26,583.95
$26,154.54
$25,722.27
$25,287.11
$24,849.05
$24,408.07
$23,964.16
$23,517.28
$23,067.42
$22,614.57
$22,158.69
$21,699.78
$21,237.81
$20,772.76
$20,304.60
$19,833.33
$19,358.91
$18,881.33
$18,400.57
$17,916.60
$17,429.41
$16,938.97
$16,445.26
$15,948.25
$15,447.94
$14,944.29
$14,437.28
$13,926.89
$13,413.10
$12,895.88
$12,375.21
$11,851.08
$11,323.45
$10,792.30
$10,257.61
$9,719.35
$9,177.51
$8,632.06
$8,082.97
$7,530.21
$6,973.78
$6,413.63
$5,849.75
$5,282.11

112
113
114
115
116
117
118
119
120

$5,282.11
$4,710.69
$4,135.45
$3,556.39
$2,973.46
$2,386.64
$1,795.92
$1,201.25
$602.62

($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)
($606.64)

($35.21)
($31.40)
($27.57)
($23.71)
($19.82)
($15.91)
($11.97)
($8.01)
($4.02)

($571.42)
($575.23)
($579.07)
($582.93)
($586.81)
($590.73)
($594.67)
($598.63)
($602.62)

$4,710.69
$4,135.45
$3,556.39
$2,973.46
$2,386.64
$1,795.92
$1,201.25
$602.62
$0.00

unctions to solve.

play your results starting on Cell H10.

$3,000.00
$2,500.00
$2,000.00

0.00%

$1,500.00

5.00%
20.00%

$1,000.00
$500.00
0

functions to solve.

urn does the security provide?

d to grow by 2% per year.

her than an

Semi-annual
Inputs
Output

Inputs
Output

ate is 8%, and you must amortize the

dule that shows the monthly payments
tutes interest expense to the borrower

$50,000.00

N
10

I/Y
5.00%

PV
($1,000.00)

PMT

I/Y
5.00%

PV

PMT

N
10

$613.91

FV
$1,628.89
FV
($1,000.00)