Finance Equations. Calculates Ratios. Irr - NPV

PRINCIPLES OF MANAGERIAL FINANCE
PMF PROBLEM SOLVER

Index By Category
Bond and Stock Valuation Cost of Capital
Basic Bond Valuation After Tax Cost of Debt
Book Value Cost of Common Stock
Liquidation Value Cost of Preferred Stock
P/E Multiplier Weighted Avg. Cost of Capital
Constant Growth Weighted Mrg Cost of Capital
Financial Statements Capital Budgeting

All Ratios Net Present Value
Liquidity Internal Rate of Return
Activity Payback Period
Debt Annualized Net Present Value
Profitability Initial Investment
Time Value of Money General Budgeting

PV - Single Amount Cash Budget
PV - Mixed Stream
PV - Annuity
FV - Single Amount
FV - Annuity
Deposits to a Sum
Alphabetical Index
Activity Initial Investment
After Tax Cost of Debt Internal Rate of Return
All Ratios Liquidation Value
Annualized Net Present Value Liquidity
Basic Bond Valuation Net Present Value
Book Value P/E Multiplier
Cash Budget Payback Period
Constant Growth Profitability
Cost of Common Stock PV - Annuity
Cost of Preferred Stock PV - Mixed Stream
Debt PV - Single Amount
Deposits to a Sum Weighted Avg. Cost of Capital
FV - Annuity Weighted Mrg Cost of Capital
FV - Single Amount
© 2003 by Addison Wesley Longman.

Copyright © 2003 KMT Software, Inc. All Rights Reserved.
© 2003 by Addison Wesley Longman Printed: 01/20/2011

Basic Bond Valuation
Par Value of the Bond $1,000
Years to Maturity 10
Required Rate of Return 12.000%
Coupon Rate of Bond 10.000%
Payment of interest:
Annual ● Semi-annual ●
Value of the bond is: $885.30
File: 49961638.xls © 2003 by Addison Wesley Longman Printed: 01/20/2011

Book Value
Total Assets $6,000,000
Total Liabilities $4,500,000
Number of Common Shares Outstanding 100,000
The book value per share is: $15.00

Price/Earnings (P/E) Multiple
Average P/E Ratio for Firms in the Industry 7.0
Earnings per Share $2.60
The value per share is: $18.20

Liquidation Value
Liquidation Value of Assets $5,250,000
Book Value of Preferred Stock 0
Number of Common Shares Outstanding 100,000
The liquidation value per share is: $7.50

Constant Growth
Estimated Dividend per Share $1.50
Expected Annual Growth Rate of Dividends 7.00%
Investor's Required Rate of Return 15.00%
The value per share is: $18.75

Financial Ratios (All)
Income Statement
Revenue (Sales) $3,074
Less: Cost of goods sold 2,088
Gross profits $986
Less: Operating Expenses
Selling expense $100
General and administrative 194
Lease expenses 35
Depreciation expense 239
Other
Total operating expenses $568
Operating profits $418
Less: Interest expense 93
Net profits before taxes $325
Less: Taxes 94
Net profits after taxes $231
Less: Preferred stock dividends 10
Earnings available for common stockholders $221
Balance Sheet
Assets
Current assets
Cash $363
Marketable securities 68
Accounts receivable 503
Inventories 289
Other
Total current assets $1,223
Gross Fixed assets (at cost)
Land and buildings $2,072
Machinery and equipment 1,866
Furniture and fixtures 358
Vehicles 275
Other 98
Total gross fixed assets $4,669
Less: Accumulated depreciation 2,295
Net fixed assets $2,374
Total assets $3,597
Liabilities and Stockholders' Equity

Current liabilities
Accounts payable $382
Notes payable 79
Accruals 159
Other
Total current liabilities $620
Long-term debts $1,023
Total liabilities $1,643
Stockholders' equity
Preferred stock $200
Common stock 191
Paid-in capital 428

Retained earnings $1,135
Total stockholders' equity $1,954
Total liabilities and stockholders' equity $3,597
Additional Data Needed for Ratios

Principal Payments made during period $71
Lease Payments made during period $35
Tax Rate 29%
Common Shares Outstanding (in 000s) 76
Market Price per Share of Common Stock $32.25
Liquidity Analysis and Ratios

Net Working Capital $603
Current Ratio 1.97
Quick Ratio 1.51
Activity Ratios
Inventory Turnover 7.22
Average Collection Period 58.91
Fixed Asset Turnover 1.29
Total Asset Turnover 0.85
Debt Ratios
Debt Ratio 45.7%
Debt-equity Ratio 52.4%
Times Interest Earned 4.5
Fixed-payment Coverage Ratio 1.9
Profitability Ratios
Gross Profit Margin 32.1%
Operating Profit Margin 13.6%
Net Profit Margin 7.5%
Return on Assets (ROA) 6.4%
Return on Equity (ROE) 11.8%
Earnings Per Share (EPS) $2.90
Price/Earnings (P/E) Ratio 11.1

Liquidity Analysis and Ratios
Net Working Capital
Current Assets $1,223,000
Current Liabilities $620,000
The net working capital is: $603,000
Current Ratio
The current ratio is: 1.97
Quick Ratio
Inventory $289,000
The quick ratio is: 1.51

Activity Ratios
Inventory Turnover
Cost of Goods Sold $2,088,000
Inventory $289,000
The inventory turnover is: 7.22
Average Collection Period

Accounts Receivable $503,000
Annual Sales $3,074,000
The average collection period is: 58.91
Average Payment Period

Accounts Payable $382,000
Annual Purchases $1,461,600
Days in year 360
The average payment period is: 94.09
Total Asset Turnover

Sales $3,074,000
The total asset turnover is: 0.85

Debt Ratios
Debt Ratio
The debt ratio is: 45.7%
Debt-equity Ratio
Long-term debt $1,023,000
Stockholders' Equity $1,954,000
The debt-equity ratio is: 52.4%
Times Interest Earned

Earnings Before Interest and Taxes $418,000
Interest Expense $93,000
The times interest earned ratio is: 4.5
Fixed-payment Coverage Ratio

Earnings Before Interest and Taxes $418,000
Interest Expense $93,000
Principal Payments $71,000
Lease Payments $35,000
Total Preferred Dividends $10,000
Tax Rate 29%
The fixed-payment coverage ratio is: 1.87

Profitability Ratios
Gross Profit Margin
Sales $3,074,000
Cost of Goods Sold $2,088,000
The gross profit margin is: 32.1%
Operating Profit Margin

Operating profit $418,000
Sales $3,074,000
The operating profit margin is: 13.6%
Net Profit Margin

Net Profits After Taxes $231,000
Sales $3,074,000
The net profit margin is: 7.5%
Return on Assets (ROA)

The return on assets is: 6.4%
Return on Equity (ROE)

Stockholders' Equity $1,954,000
The return on equity is: 11.8%
Earnings Per Share (EPS)

Earnings Available to Common Stockholders' $221,000
Common Shares Outstanding 76,262
The earnings per share are: $2.90
Price/Earnings (P/E) Ratio

Market Price per Share of Common Stock $32.25
Earnings Per Share $2.90
The price/earnings ratio is: 11.1

Present Value - Single Amount
Future Amount (at the end of n periods) $1,700.00
Number of Periods (n) 8
Interest Rate Per Period (per n periods) 8.00%
The present value is: $918.46
Calculating an Interest Rate

Present Value $918.46
The interest rate per period is: 8.00%
Calculating the Number of Periods

The number of periods are: 8

Present Value of a Mixed Stream
Periodic Discount Rate 9.00%
Cash
Period (n) Flow
1 400
2 800
3 500
4 400
5 300
6
7
8
9
10
The present value is: $1,904.76

Present Value of an Annuity
Choose one of the following options:
Ordinary Annuity Annuity Due
Payment Per Period $700.00

Number of Periods 5
The present value of the annuity is: $2,794.90

Present Value $2,794.90

Present Value $2,794.90
The number of periods is: 5

Future Value - Single Amount
Compounding Choices (select one):
Annual
Semi-annual
Quarterly
Bi-monthly
Monthly
Continuous
The future value is: $116.64
Calculating an Effective Interest Rate

Compounding Frequency (select one):
Nominal Interest Rate 8.00%

Number of Years 2
The effective rate per period (per n periods) is: 8.24%

Future Value $116.64
The number of periods is: 2

Future Value of an Annuity
Choose one of the following options:
Payment Per Period $1,000.00

Number of Periods 5
The future value of the annuity is: $5,750.74

Future Value $5,750.74

Future Value $5,750.74
The number of periods is: 5.00

Deposits to a Sum
Select the type of annuity:
Amount to be Accumulated $100,000

Number of years 10
Annual Interest Rate 9.00%
The periodic deposit is: $6,582.01

After Tax Cost of Debt
Par value of bond $1,000
Cash inflow from sale (per bond) $960
Coupon rate 9.00%
Number of periods to maturity 20
Tax rate 40.0%
The approximate cost is: 9.39%

The after tax cost is: 5.63%

Cost of Common
Constant Growth Model
Current per Share Market Value of Stock $50.00
Dividend per Share 4
Projected Growth Rate of Dividends 5.00%
The cost of common stock is: 13.00%
Capital Asset Pricing Model

Risk Free Rate of Return 7.00%
Market Rate of Return 11.00%
Beta 1.50
Cost of New Issue

Current per Share Market Value of Stock $50.00
Dividend per Share $4.00
Growth Rate of Dividends 5.00%
Flotation Cost per Share $5.50

Cost of Preferred Stock
Annual Preferred Stock Dividend $8.70
Net Proceeds from Sale of Preferred Stock $82.00
The cost of preferred stock is: 10.61%

Weighted Average Cost of Capital
Long-term debt proportion 40.00%
Preferred stock proportion 10.00%
Common stock/Equity proportion 50.00%
Cost of debt 5.60%

Cost of preferred stock 10.60%
Cost of equity/stock 13.00%
The weighted average cost of capital is: 9.80%

Weighted Marginal Cost of Capital
Long-term debt proportion 40.00%
Preferred stock proportion 10.00%
Common stock/Equity proportion 50.00%
Range of New Financing

Lower Upper Source of Weighted
Bound Bound Capital Cost Cost
$0 $600,000 Debt 5.60% 2.24%
Preferred 10.60% 1.06%
Common 13.00% 6.50%
Weighted average cost of capital 9.80%

$600,000 $1,000,000 Debt 5.60% 2.24%
Common 14.00% 7.00%

$1,000,000 and beyond Debt 8.40% 3.36%
Common 14.00% 7.00%

Net Present Value
Initial Investment (enter as positive number) $50,000
Discount Rate 14%
Years Cash Flows

1 30,000
2 25,000
3 20,000
4 15,000
5 -
6
7
8
9
10
11
12
13
14
15
The net present value is: $17,933

Internal Rate of Return
Years Cash Flows
0 Initial Investment --> ($50,000)
1 20,000
2 18,000
3 17,000
4 15,000
5 -
6
7
8
9
10
11
12
13
14
15
The internal rate of return is: 15.78%

Payback Period
Years Cash Flows
0 Initial Investment --> ($45,000)
1 1,000
2 1,000
3 1,000
4 1,000
5 1,000
6 1,000
7 40,000
8 6,000
9
10
11
12
13
14
15
The payback period is: 6.975

Annualized Net Present Value
Discount Rate 10.00%
Number of years 6
Years Cash Flows

0 Initial Investment enter as negative --> ($85,000)
1 35,000
2 30,000
3 25,000
4 20,000
5 15,000
6 10,000
7
8
9
10
11
12
13
14
15
The net present value is: $17,285

The annualized NPV is: $3,969

Initial Investment
Cost of new asset $380,000
Installation costs 20,000
After-tax proceeds from sale of old asset 280,000
Tax on sale of present machine 84,160
Change in net working 17,000
The initial investment is: $221,160

Cash Budget
(all numbers in $000)
Oct #VALUE! #VALUE! #VALUE! #VALUE! #VALUE!

Total cash receipts $210 $320 $340
Less: Total cash disbursements 213 418 305
Net cash flow ($3) ($98) $35
Add: beginning cash $50 $47 ($51)
Ending cash $47 ($51) ($16)
Less: Minimum cash balance 25 25 25
Required total financing $0 $76 $41
Excess cash balance $22

Finance Equations. Calculates Ratios. Irr - NPV

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Finance Equations. Calculates Ratios. Irr - NPV

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PRINCIPLES OF MANAGERIAL FINANCE

PMF PROBLEM SOLVER

Financial Statements Capital Budgeting

Time Value of Money General Budgeting

© 2003 by Addison Wesley Longman.

© 2003 by Addison Wesley Longman Printed: 01/20/2011

Value of the bond is: $885.30

File: 49961638.xls © 2003 by Addison Wesley Longman Printed: 01/20/2011

The book value per share is: $15.00

File: 49961638.xls © 2003 by Addison Wesley Longman Printed: 01/20/2011

The value per share is: $18.20

File: 49961638.xls © 2003 by Addison Wesley Longman Printed: 01/20/2011

The liquidation value per share is: $7.50

File: 49961638.xls © 2003 by Addison Wesley Longman Printed: 01/20/2011

The value per share is: $18.75

File: 49961638.xls © 2003 by Addison Wesley Longman Printed: 01/20/2011

Liabilities and Stockholders' Equity

File: 49961638.xls © 2003 by Addison Wesley Longman Printed: 01/20/2011

Additional Data Needed for Ratios

Liquidity Analysis and Ratios

File: 49961638.xls © 2003 by Addison Wesley Longman Printed: 01/20/2011

The net working capital is: $603,000

The current ratio is: 1.97

The quick ratio is: 1.51

File: 49961638.xls © 2003 by Addison Wesley Longman Printed: 01/20/2011

The inventory turnover is: 7.22

Average Collection Period

The average collection period is: 58.91

Average Payment Period

The average payment period is: 94.09

Total Asset Turnover

The total asset turnover is: 0.85

File: 49961638.xls © 2003 by Addison Wesley Longman Printed: 01/20/2011

The debt ratio is: 45.7%

The debt-equity ratio is: 52.4%

Times Interest Earned

The times interest earned ratio is: 4.5

Fixed-payment Coverage Ratio

The fixed-payment coverage ratio is: 1.87

File: 49961638.xls © 2003 by Addison Wesley Longman Printed: 01/20/2011

The gross profit margin is: 32.1%

Operating Profit Margin

The operating profit margin is: 13.6%

Net Profit Margin

The net profit margin is: 7.5%

Return on Assets (ROA)

The return on assets is: 6.4%

Return on Equity (ROE)

The return on equity is: 11.8%

Earnings Per Share (EPS)

The earnings per share are: $2.90

Price/Earnings (P/E) Ratio

The price/earnings ratio is: 11.1

File: 49961638.xls © 2003 by Addison Wesley Longman Printed: 01/20/2011

The present value is: $918.46

Calculating an Interest Rate

The interest rate per period is: 8.00%

Calculating the Number of Periods

The number of periods are: 8

File: 49961638.xls © 2003 by Addison Wesley Longman Printed: 01/20/2011

The present value is: $1,904.76

File: 49961638.xls © 2003 by Addison Wesley Longman Printed: 01/20/2011

Payment Per Period $700.00