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# Week1 - 2-10 a \$500(1.06)10 = \$895.42 b \$500(1.12)10 =...

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2-10 a. \$500(1.06) 10 = \$895.42 b. \$500(1.12) 10 = \$1,552.92. c. \$500(1/1.06) 10 = \$279.20 d. \$500(1/1.12) 10 = \$160.99 3-4 EBITDA \$7,500,000 DA 2,500,000 EBIT \$5,000,000 Int 2,000,000 EBT \$3,000,000 Taxes (40%) 1,200,000 NI \$1,800,000 5-4 r = r* + IP + DRP + LP + MRP. DRP = LP = 0. r T-2 = r* + IP 2 IP 2 = (2% + 4%)/2 = 3% r T-2 = 4% + 3% = 7%. r T-3 = r* + IP 3 IP 3 = (2% + 4% + 4%)/3 = 3.33% r T-3 = 4% + 3.33% = 7.33%. 5-5 r = r* + IP + DRP + LP + MRP. r T-10 = 6% = r* + IP + MRP; DRP = LP = 0. r C-10 = 8% = r* + IP + DRP + 0.5% + MRP. r C-10 = 9% = r* + IP + MRP + 0.5% + DRP. As r* + IP + MRP = 6%; r C-10 = 9% = 6% + 0.5% + DRP DRP = 2.5%. 5-19 IP 5 = 54% + 4% + 4% + 5% + 8% = 525% = 5%. IP 2 = 25% + 8% = 6.5%. r 2 = 3% + 6.5% + MRP 2 = 10%. r 5 = 3% + 5% + MRP 5 = 10%. MRP 5 = 10% - 8% = 2%. MRP 2 = 10% - 9.5% = 0.5%. Difference = (2% - 0.5%) = 1.5% Chapter3 Mini Case

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Balance Sheets Assets 2006 2007 Cash \$ 9,000 \$ 7,282 Short-term investments. 48,600 20,000 Accounts receivable 351,200 632,160 Inventories 715,200 1,287,360 total current assets \$ 1,124,000 \$ 1,946,802 Gross fixed assets 491,000 1,202,950 Less: accumulated depreciation 146,200 263,160 net fixed assets \$ 344,800 \$ 939,790 Total assets \$ 1,468,800 \$ 2,886,592 Liabilities and equity 2006 2007 Accounts payable \$ 145,600 \$ 324,000 Notes payable 200,000 720,000 Accruals 136,000 284,960 total current liabilities \$ 481,600 \$ 1,328,960 Long-term debt 323,432 1,000,000 Common stock (100,000 shares) 460,000 460,000 Retained earnings 203,768 97,632 total equity \$ 663,768 \$ 557,632 Total liabilities and equity \$ 1,468,800 \$ 2,886,592 Income Statements 2006 2007 Sales \$ 3,432,000 \$ 5,834,400 Cost of goods sold 2,864,000 4,980,000 Other expenses 340,000 720,000 Depreciation 18,900 116,960 total operating costs \$ 3,222,900 \$ 5,816,960 EBIT \$ 209,100 \$ 17,440 Interest expense 62,500 176,000 EBT \$ 146,600 \$ (158,560) Taxes (40%) 58,640 (63,424) Net income \$ 87,960 \$ (95,136) Other data 2006 2007
Stock price \$ 8.50 \$ 6.00 Shares outstanding 100,000 100,000 EPS \$ 0.880 \$ (0.951) DPS \$ 0.220 \$ 0.110 Statement of retained earnings, 2007 Balance of retained earnings, 12/31/2006 \$ 203,768 add: net income, 2007 \$ (95,136) less: dividend paid, 2007 \$ (11,000) Balance of retained earnings, 12/31/2007 \$ 97,632 Statement of Cash Flows Operating activities Net income \$ (95,136) Adjustments: noncash adjustments: depreciation 116,960 changes in working capital: change in accounts receivable (280,960) change in inventories (572,160) change in accounts payable 178,400 change in accruals 148,960

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Week1 - 2-10 a \$500(1.06)10 = \$895.42 b \$500(1.12)10 =...

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