公司理財課后小案例答案

CaseSolutions

CorporateFinance

Ross,Westerfield,andJaffe

9thedition

CHAPTER2

CASHFLOWSATWARFCOMPUTERS

Theoperatingcashflowforthecompanyis:(NOTE:Allnumbersareinthousandsofdollars)

OCF=EBIT+Depreciation-Currenttaxes

OCF=$1,332+159-386

OCF=$1,105

Tocalculatethecashflowfromassets,weneedtofindthecapitalspendingandchangeinnet

workingcapital.Thecapitalspendingfortheyearwas:

Capitalspending

Endingnetfixedassets$2,280

-Beginningnetfixedassets1,792

+Depreciation159

Netcapitalspending$647

Andthechangeinnetworkingcapitalwas:

Changeinnetworkingcapital

EndingNWC$728

-BeginningNWC586

ChangeinNWC$142

So,thecashflowfromassetswas:

Cashflowfromassets

Operatingcashflow$1,105

-Netcapitalspending647

-ChangeinNWC142

Cashflowfromassets$316

Thecashflowtocreditorswas:

Cashflowtocreditors

Interestpaid$95

-NetNewBorrowing20

CashflowtoCreditors$75

2

Thecashflowtostockholderswas:

Cashflowtostockholders

Dividendspaid$212

-Netnewequityraised-29

CashflowtoStockholders$241

Theaccountingcashflowstatementofcashflowsfortheyearwas:

StatementofCashFlows

Operations

Netincome$742

Depreciation159

Deferredtaxes109

Changesinassetsandliabilities

Accountsreceivable(31)

Inventories14

Accountspayable17

Accruedexpenses(99)

Other(9)

Totalcashflowfromoperations$902

Investingactivities

Acquisitionoffixedassets$(786)

Saleoffixedassets139

Totalcashflowfrominvestingactivities$(547)

Financingactivities

Retirementofdebt$(98)

Proceedsoflong-termdebt118

Notespayable5

Dividends(212)

Repurchaseofstock(40)

Proceedsfromnewstockissues11

Totalcashflowfromfinancingactivities$(216)

Changeincash(onbalancesheet)$39

3

A-swerytoquestions

1.Thefirmhadpositiveearningsinanaccountingsense(NI>0)andhadpositivecashflowfrom

operationsandapositivecashflowfromassets.Thefirminvested$142innewnetworkingcapital

and$647innewfixedassets.Thefirmwasabletoreturn$241toitsstockholdersand$75to

creditors.

2.Thefinancialcashflowspresentamoreaccuratepictureofthecompanysinceitaccuratelyreflects

interestcashflowsasafinancingdecisionratherthananoperatingdecision.

3.Theexpansionplanslookliketheyareprobablyagoodidea.Thecompanywasabletoreturna

significantamountofcashtoitsshareholdersduringtheyear,butabetteruseofthesecashflowsmay

havebeentoretainthemfortheexpansion.Thisdecisionwillbediscussedinmoredetaillaterinthe

book.

4

CHAPTER3

RATIOSANDFINANCIALPLANNINGAT

EASTCOASTYACHTS

Thecalculationsfortheratioslistedare:

Currentratio=$14,651,000/$19,539,000

Currentratio=0.75times

Quickratio=($14,651,000-6,136,000)/$19,539,000

Quickratio=0.44times

Totalassetturnover=$167,310,000/$108,615,000

Totalassetturnover=1.54times

Inventoryturnover=$117,910,000/$6,136,000

Inventoryturnover=19.22times

Receivablesturnover=$167,310,000/$5,473,000

Receivablesturnover=30.57times

Totaldebtratio=($108,615,000-55,341,000)/$108,615,000

Totaldebtratio=0.49times

Debt-equityratio=($19,539,000+33,735,000)/$55,341,000

Debt-equityratio=0.96times

Equitymultiplier=$108,615,000/$55,341,000

Equitymultiplier=1.96times

Interestcoverage=$23,946,000/$3,009,000

Interestcoverage=7.96times

Profitmargin=$12,562,200/$167,310,000

Profitmargin=7.51%

Returnonassets=$12,562,200/$108,615,000

Returnonassets=11.57%

Returnonequity=$12,562,000/$55,341,000

Returnonequity=22.70%

5

Regardingtheliquidityratios,EastCoastYachtscurrentratioisbelowthemedianindustryratio.

Thisimpliesthecompanyhaslessliquiditythantheindustryingeneral.However,thecurrentratio

isabovethelowerquartile,sotherearecompaniesintheindustrywithlowerliquiditythanEast

CoastYachts.Thecompanymayhavemorepredictablecashflows,ormoreaccesstoshort-term

borrowing.

Theturnoverratiosareallhigherthantheindustrymedian;infact,allthreeturnoverratiosare

abovetheupperquartile.ThismaymeanthatEastCoastYachtsismoreefficientthantheindustry

inusingitsassetstogeneratesales.

Thefinancialleverageratiosareallbelowtheindustrymedian,butabovethelowerquartile.East

CoastYachtsgenerallyhaslessdebtthancomparablecompanies,butisstillwithinthenormal

range.

Theprofitmarginforthecompanyisaboutthesameastheindustrymedian,theROAisslightly

higherthantheindustrymedian,andtheROEiswellabovetheindustrymedian.EastCoastYachts

seemstobeperformingwellintheprofitabilityarea.

Overall,EastCoastYachts'performanceseemsgood,althoughtheliquidityratiosindicatethata

closerlookmaybeneededinthisarea.

6

Belowisalistofpossiblereasonsitmaybegoodorbadthateachratioishigherorlowerthanthe

industry.Notethatthelistisnotexhaustive,butmerelyonepossibleexplanationforeachratio.

RatioGoodBad

CurrentratioBetteratmanagingcurrentMaybehavingliquidityproblems.

accounts.

QuickratioBetteratmanagingcurrentMaybehavingliquidityproblems.

accounts.

TotalassetturnoverBetteratutilizingassets.Assetsmaybeolderand

depreciated,requiringextensive

investmentsoon.

InventoryturnoverBetteratinventorymanagement,Couldbeexperiencinginventory

possiblyduetobetterprocedures.shortages.

ReceivablesturnoverBetteratcollectingreceivables.Mayhavecredittermsthataretoo

strict.Decreasingreceivables

turnovermayincreasesales.

TotaldebtratioLessdebtthanindustrymedianIncreasingtheamountofdebtcan

meansthecompanyislesslikelyincreaseshareholderreturns.

toexperiencecreditproblems.Especiallynoticethatitwill

increaseROE.

Debt-equityratioLessdebtthanindustrymedianIncreasingtheamountofdebtcan

meansthecompanyislesslikelyincreaseshareholderreturns.

toexperiencecreditproblems.Especiallynoticethatitwill

increaseROE.

EquitymultiplierLessdebtthanindustrymedianIncreasingtheamountofdebtcan

meansthecompanyislesslikelyincreaseshareholderreturns.

toexperiencecreditproblems.Especiallynoticethatitwill

increaseROE.

InterestcoverageLessdebtthanindustrymedianIncreasingtheamountofdebtcan

meansthecompanyislesslikelyincreaseshareholderreturns.

toexperiencecreditproblems.Especiallynoticethatitwill

increaseROE.

ProfitmarginThePMisslightlyabovetheMaybeabletobettercontrol

industrymedian,soitiscosts.

performingbetterthanmany

peers.

ROACompanyisperformingaboveAssetsmaybeoldanddepreciated

manyofitspeers.relativetoindustry.

ROECompanyisperformingaboveProfitmarginandEMcouldstill

manyofitspeers.beincreased,whichwouldfurther

increaseROE.

IfyoucreatedanInventorytoCurrentliabilitiesratio,EastCoastYachtswouldhavearatiothatis

lowerthantheindustrymedian.Thecurrentratioisbelowtheindustrymedian,whilethequick

ratioisabovetheindustrymedian.ThisimpliesthatEastCoastYachtshaslessinventorytocurrent

liabilitiesthantheindustrymedian.Becausethecashratioislowerthantheindustrymedian,East

CoastYachtshaslessinventorythantheindustrymedian,butmoreaccountsreceivable.

7

3.Tocalculatetheinternalgrowthrate,wefirstneedtofindtheROEandtheretentionratio,so:

ROE=NI/TE

ROE=$12,562,200/$55,341,000

ROE=.2270or22.70%

b=AdditiontoRE/NI

b=$5,024,800/$12,562,200

b=0.40or40%

So,thesustainablegrowthrateis:

Sustainablegrowthrate=(ROExb)/[1-(ROEx/?)]

Sustainablegrowthrate=[0.2270(.40)]/[I-0.2270(.40)]

Sustainablegrowthrate=.0999or9.99%

Thesustainablegrowthrateisthegrowthratethecompanycanachievewithnoexternalfinancing

whilemaintainingaconstantdebt-equityratio.

Atthesustainablegrowthrate,theproformastatementsnextyearwillbe:

Incomestatement

Sales$184,018,615

COGS129,685,224

Otherexpenses21,990,725

Depreciation5,460,000

EBIT$26,882,666

Interest3,009,000

Taxableincome$23,873,666

Taxes(40%)9,549,466

Netincome$14,324,199

Dividends$8,594,520

AddtoRE5,729,680

8

Balancesheet

AssetsLiabilities&Equity

CurrentAssetsCurrentLiabilities

Cash$3,345,793AccountsPayable$7,106,236

Accountsrec.6,019,568NotesPayable14,384,050

Inventory6,748,779TotalCL$21,490,286

TotalCA$16,114,140

Long-termdebt$33,735,000

ShareholderEquity

Commonstock$5,200,000

FixedassetsRetainedearnings55,870,680

NetPP&E$103,347,828TotalEquity$61,070,680

TotalAssets$119,461,968TotalL&E__$116,295,966

So,theEFNis:

EFN=Totalassets-Totalliabilitiesandequity

EFN=$119,461,968-116,295,966

EFN=$3,166,002

Theratioswiththeseprofbrmastatementsare:

Currentratio=$16,114,140/$21,490,286

Currentratio=0.75times

Quickratio=($16,114,140-6,748,779)/$21,490,286

Quickratio=0.44times

Totalassetturnover=$184,018,615/$119,461,968

Totalassetturnover=1.54times

Inventoryturnover=$129,685,224/$6,748,779

Inventoryturnover=19.22times

Receivablesturnover=$184,018,615/$6,019,568

Receivablesturnover=30.57times

Totaldebtratio=($116,295,966-61,070,680)/$116,295,966

Totaldebtratio=0.49times

Debt-equityratio=($21,490,286+33,735,000)/$61,070,680

Debt-equityratio=0.90times

9

Equitymultiplier=$119,460,968/$61,070,680

Equitymultiplier=1.96times

Interestcoverage=$26,882,666/$3,009,000

Interestcoverage=8.93times

Profitmargin=$14,324,199/$184,018,615

Profitmargin=7.78%

Returnonassets=$14,324,199/$119,461,968

Returnonassets=11.99%

Returnonequity=$14,324,199/$61,070,680

Returnonequity=23.45%

Theonlyratiosthatchangedarethedebtratio,theinterestcoverageratio,profitmargin,returnon

assets,andreturnonequity.Thedebtratiochangesbecauselong-termdebtisassumedtoremain

fixedintheproformastatements.Theotherratioschangeslightlybecauseinterestanddepreciation

arealsoassumedtoremainconstantaswell.

Proformafinancialstatementsfornextyearata20percentgrowthratearc:

Incomestatement

Sales$200,772,000

COGS141,492,000

Otherexpenses23,992,800

Depreciation5,460,000

EBIT$29,827,200

Interest3,009,000

Taxableincome$26,818,200

Taxes(40%)10,727,280

Netincome$16,090,920

Dividends$9,654,552

AddtoRE6,436,368

10

Balancesheet

AssetsLiabilities&Equity

CurrentAssetsCurrentLiabilities

Cash$3,650,400AccountsPayable$7,753,200

Accountsrec.6,567,600NotesPayable15,693,600

Inventory7,363,200TotalCL$23,446,800

TotalCA$17,581,200

Long-termdebt$33,735,000

ShareholderEquity

Commonstock$5,200,000

FixedassetsRetainedearnings56,577,368

NetPP&E$112,756,800TotalEquity$61,777,368

TotalAssets$130,338,000TotalL&E__$118,959,168

So,theEFNis:

EFN=Totalassets-Totalliabilitiesandequity

EFN=$130,338,000-118,959,168

EFN=$8,753,040

NowweareassumingthecompanycanonlybuildinamountsofS30million.Wewillassumethat

thecompanywillgoaheadwiththefixedassetacquisition.Inthiscase,theproformafinancial

statementcalculationwillchangeslightly.Before,wemadetheassumptionthatdepreciation

increasedproportionallywithsales,whichmakessenseiffixedassetsincreaseproportionallywith

sales.Thisisnotthecasenow.Toestimatethenewdepreciationcharge,wewillfindthecurrent

depreciationasapercentageoffixedassets,then,applythispercentagetothenewfixedassets.The

depreciationasapercentageofassetsthisyearwas:

Depreciationpercentage=$5,460,000/$93,964,000

Depreciationpercentage=.0581or5.81%

Thenewleveloffixedassetswiththe$30millionpurchasewillbe:

Newfixedassets=$93,964,000+30,000,000=$123,964,000

So,theprofbrmadepreciationasapercentageofsaleswillbe:

Profbrmadepreciation=.0581(5123,964,000)

Proformadepreciation=$7,203,221

11

Wewillusethisamountintheproformincomestatement.So,theproformaincomestatementwill

be:

Incomestatement

Sales$200,772,000

COGS141,492,000

Otherexpenses23,992,800

Depreciation7,203,221

EBIT$28,083,979

Interest3,009,000

Taxableincome$25,074,979

Taxes(40%)10,029,992

Netincome$15,044,988

Dividends$9,026,993

AddtoRE6,017,995

Theproformabalancesheetwillremainthesameexceptfbrthefixedassetandequityaccounts.The

fixedassetaccountwillincreaseby$30million,ratherthanthegrowthrateofsales.

Balancesheet

AssetsLiabilities&Equity

CurrentAssetsCurrentLiabilities

Cash$3,650,400AccountsPayable$7,753,200

Accountsrec.6,567,600NotesPayable15,693,600

Inventory7,363,200TotalCL$23,446,800

TotalCA$17,581,200

Long-termdebt$33,735,000

ShareholderEquity

Commonstock$5,200,000

FixedassetsRetainedearnings56,158,995

NetPP&E$123,964,000TotalEquity$61,358,995

TotalAssets$141,545,200TotalL&E$118,540,795

So,theEFNis:

EFN=Totalassets-Totalliabilitiesandequity

EFN=$141,545,200-118,540,795

EFN=$23,004,405

Sincethefixedassetshaveincreasedatafasterpercentagethansales,thecapacityutilizationfbr

nextyearwilldecrease.

12

CHAPTER4

THEMBADECISION

1.Ageisobviouslyanimportantfactor.Theyoungeranindividualis,themoretimethereisforthe

(hopefully)increasedsalarytooffsetthecostofthedecisiontoreturntoschoolforanMBA.The

costincludesboththeexplicitcostssuchastuition,aswellastheopportunitycostofthelostsalary.

2.Perhapsthemostimportantnonquantifiablefactorswouldbewhetherornotheismarriedandifhe

hasanychildren.Withaspouseand/orchildren,hemaybelessinclinedtoreturnforanMBAsince

hisfamilymaybelessamenabletothetimeandmoneyconstraintsimposedbyclasses.Otherfactors

wouldincludehiswillingnessanddesiretopursueanMBA,jobsatisfaction,andhowimportantthe

prestigeofajobistohim,regardlessofthesalary.

3.Hehasthreechoices:remainathiscurrentjob,pursueaWiltonMBA,orpursueaMt.PerryMBA.

Inthisanalysis,roomandboardcostsarcirrelevantsincepresumablytheywillbethesamewhether

heattendscollegeorkeepshiscurrentjob.Weneedtofindtheaftertaxvalueofeach,so:

Remainatcu門job:

Aftertaxsalary=$60,000(1-.26)=$44,400

Hissalarywillgrowat3percentperyear,sothepresentvalueofhisaftertaxsalaryis:

PV=C{[l/(r-g)]-[l/(r-5)]x[(l+g)/(l+r)B

PV=$44,400{[l/(.065-.03)]-[l/(.065-.03)]x[(1+.03)/(1+.O65)]40}

PV=$935,283.49

癡MBA:

Costs:

Thedirectcostswilloccurtodayandinoneyearandincludetuition,booksandsupplies,health

insurance,andtheroomandboardincrease.Sothetotaldirectcostsare:

PVofdirectexpenses=($65,000+3,000+3,000+2,000)

+($65,000+3,000+3,000+2,500)/1.065

PVofdirectexpenses=$141,544.60

Theindirectcostsarethelostsalary,sothevalueoftheindirectcostsare:

PVofindirectcosts(lostsalary)=$44,400/(1.065)+$44,400(1+.03)/(1+.065)2

PVofindirectcosts(lostsalary)=$82,010.18

13

Thefinancialbenefitsarcthebonustobepaidin2yearsandthefuturesalary.

PVofaftertaxbonuspaidin2years=$20,000(1-.31)/1.0652=$12,166.90

Aftertaxsalary=$10,000(1-.31)=$75,900

Hissalarywillgrowat4percentperyear.Wemustalsorememberthathewillnowonlyworkfbr38

years,sothepresentvalueofhisaftertaxsalaryis:

PV=C{[l/(r-5)]-[l/(r-g)]x[(1+g)/(l+r)了}

PV=$75,900{[l/(.065-.04)]-[l/<.065-.04)]x[(1+.04)/(1+.065)]38}

PV=$1,804,927.68

Sincethefirstsalarypaymentwillbereceivedthreeyearsfromtoday,soweneedtodiscountthisfor

twoyearstofindthevaluetoday,whichwillbe:

PV=$1,804,927.68/1.0652

PV=$1,591,331.25

So,thetotalvalueofaWiltonMBAis:

Value=-$141,544.60-82,010.18+12,166.90+1,591,331.25=$1,379,943.36

MoiunPerryM84:

Thedirectcostswilloccurtodayandincludetuition,booksandsupplies,healthinsurance,andthe

roomandboardincrease.Sothetotaldirectcostsarc:

Totaldirectcosts=$80,000+4,500+3,000+2,000=$89,500.

Note,thisisalsothePVofthedirectcostssincetheyareallpaidtoday.

Theindirectcostsarethelostsalary,sothevalueoftheindirectcostsare:

PVofindirectcosts(lostsalary)=$44,400/(1.065)=$41,690.14

Thefinancialbenefitsarethebonustobepaidin1yearandthefuturesalary.

PVofaftertaxbonuspaidin1year=$18,000(1-.29)/1.065=$12,000

Hisaftertaxsalaryathisnewjobwillbe:

Aftertaxsalary=$80,000(1-.29)=$65,320

Hissalarywillgrowat3.5percentperyear.Wemustalsorememberthathewillnowonlyworkfbr

39years,sothepresentvalueofhisaftertaxsalaryis:

PV=C{[l/(r-5)]-[l/(r-?)]x[(1+g)/(i+「)了}

PV=$65,320{[l/(.065-.035)]-[l/(.O65-.035)]x[(1+.035)/(l+.065)]35}

PV=$1,462,896.46

14

Sincethefirstsalarypaymentwillbereceivedtwoyearsfromtoday,soweneedtodiscountthisfbr

oneyeartofindthevaluetoday,whichwillbe:

PV=$1,462,896.46/1.065

PV=$1,373,611.70

So,thetotalvalueofaMountPerryMBAis:

Value=-$89,500-41,690.14+12,000+1,373,611.70=$1,254,421.56

4.Heissomewhatcorrect.Calculatingthefuturevalueofeachdecisionwillresultintheoptionwith

thehighestpresentvaluehavingthehighestfuturevalue.Thus,afuturevalueanalysiswillresultin

thesamedecision.However,hisstatementthatafuturevalueanalysisisthecorrectmethodiswrong

sinceapresentvalueanalysiswillgivethecorrectansweraswell.

5.TofindthesalaryofferhewouldneedtomaketheWiltonMBAasfinanciallyattractiveastheasthe

currentjob,weneedtotakethePVofhiscurrentjob,addthecostsofattendingWilton,andthePV

ofthebonusonanaftertaxbasis.Note,thisassumesthatthesingingbonusisconstant.So,the

necessaryPVtomaketheWiltonMBAthesameashiscurrentjobwillbe:

PV=$935,283.49+1414,544.60+82,010.18-12,166.90=$1,146,671.37

ThisPVwillmakehiscurrentjobexactlyequaltotheWiltonMBAonafinancialbasis.Sincethe

salarywillnotstartfbr3years,weneedtofindthevaluein2yearssothatitisthepresentvalueof

growingannuity.So:

Valuein2years=$1,146,671.37(1.0652)=$1,300,583.34

Sincehissalarywillstillbeagrowingannuity,theaftertaxsalaryneededis:

PV=C{[l/(r-^)]-[l/(r-J?)]x[(l+g)/(l+r)了}

$1,300,583.34=C{[l/(.O65-.04)]-[l/(.O65-.04)]x[(1+.04)/(1+,065)]38}

C=$54,691.54

Thisistheaftertaxsalary.So,thepretaxsalarymustbe:

Pretaxsalary=$54,691.54/(1-.31)=$76,263.10

6?Thecost(interestrate)ofthedecisiondependsontheriskinessoftheuseoffunds,notthesourceof

thefunds.Therefore,whetherhecanpaycashormustborrowisirrelevant.Thisisanimportant

conceptwhichwillbediscussedfurtherincapitalbudgetingandthecostofcapitalinlaterchapters.

15

CHAPTER5

BULLOCKGOLDMINING

1.Anexamplespreadsheetis:

H1ABCDEFG!H

1Chapter5

2BullockGoldMining

3

4Inputarea.

5

6

7Yea「Cashflow

80$(400,000,000)

91S85.000.000

102$90,000,000

113S140,000.000

124$180,000,000

135$195,000,000

146$130,000,000

157$95,000,000

168$60.000,000

179$(95,000,000)

18

19Requiredreturn12%

20

21

22Outputarea.

23

24

25Paybackperiod3.47|

26

27IRR23.73%=IRR(D8:D17)

28IRR-48.93%=IRR(D8:D17,-0.99)

29

30MIRR16.21%|=MIRR(D8:D17.D19,D19)

31

32Profitabilityindex|1.43hNPV(D19,D9:D17)/-D8

33

34NPV|$171,141,294.31|=NPV(D19,D9:D17)+D8

35

36

37

16

2.SincetheNPV