Bucket Shops
Despite its forbidding name, the CDS (Credit Default Swap) is a simple idea: it allows an
investor to buy insurance against a company defaulting on its debt payments. When it was
invented, the CDS was a useful concept because more people felt

Problem 13-20
Inputs
Current CFAo
Initial growth rate in CFA
Terminal CFA growth rate
Schultz WACC
Arras WACC
Shares outstanding
Debt value
$
$
7,500,000
8%
4%
12%
10%
3,000,000
25,000,000
Year 1:
Year 2:
Year 3:
Year 4:
Year 5:
Year 6:
7,500,000.00
8,100

Chapter 13
Question 17
Input Area:
Bond 1:
Bonds outstanding
Settlement date
Maturity date
Annual coupon rate
Coupons per year
Bond price (% of par)
100,000
1/1/2000
1/1/2020
6.00%
2
108.00
Bond 2:
Bonds outstanding
Settlement date
Maturity date
Annual co

DEBT
years of project
Purchase land 3 years ago
Land Appraised
Future price of land after tax 5 years
plant and equipment
Bonds outstanding
25 Maturity of par
Bonds par value Each
5.00
7,500,000.00
7,100,000.00 Opportunity Cost
7,400,000.00 Cash Flow
40,0

16-20
20,000.00 Alpha Shares outstanding worth
25.00
A.
500,000.00
B.
Is the same since Alpha and Beta are identical
C.
V=B+S
500,000 = 70,000 + S
S = 500,000 - 70,000
S=
430,000.00
E.
Alpha =
Beta =
D. Alpha .25 (500,000)
Beta = .25 (430,000)
0.25 80,000

15-10
Bond A
Coupon Rate
Value Outstanding
Call Premium
Transaction cost of Refunding
Current YTM
Gain the cost of NPV of refunding the 8%
Corporate Tax
7.00%
133,000,000.00
7.60%
12,300,000.00
6.25%
Bond B
8.00%
140,000,000.00
8.40%
17,000,000.00
7.10%
4

Chapter 16
Problems 1-29 (odd problems)
Input boxes in tan
Output boxes in yellow
Given data in blue
Calculations in red
Answers in green
NOTE: Some functions used in these spreadsheets may require that
the "Analysis ToolPak" or "Solver Add-in" be install

Chapter 17
Problems 1-9 (odd problems)
Input boxes in tan
Output boxes in yellow
Given data in blue
Calculations in red
Answers in green
NOTE: Some functions used in these spreadsheets may require that
the "Analysis ToolPak" or "Solver Add-in" be installe

Chapter 19
Problems 1-19 (odd problems)
Input boxes in tan
Output boxes in yellow
Given data in blue
Calculations in red
Answers in green
NOTE: Some functions used in these spreadsheets may require that
the "Analysis ToolPak" or "Solver Add-in" be install

Chapter 18
Problems 1-19 (odd problems)
Input boxes in tan
Output boxes in yellow
Given data in blue
Calculations in red
Answers in green
NOTE: Some functions used in these spreadsheets may require that
the "Analysis ToolPak" or "Solver Add-in" be install

Chapter 29
Problems 1-17 (odd problems)
Input boxes in tan
Output boxes in yellow
Given data in blue
Calculations in red
Answers in green
NOTE: Some functions used in these spreadsheets may require that
the "Analysis ToolPak" or "Solver Add-in" be install

Debt versus Financial Flexibility
Do companies have more or less financial flexibility by taking more debt?
What are the pros and cons of each one (debt/leverage and financial flexibility).
Securing funds (borrowing) should not be confused with the gainin

In the 2007 the inflation rate in the US was 4.1% while the average return in a Certificate
of Deposit (CD) was 3.65%. Was it rational to invest in CDs during 2007? Inflation Rates
CD Rates
YES, it is rational. Even though you still have a negative real r

FIN 620
Long-Term Financial Management
Week 3
1. Lecture Notes/Comments
From Chapter 15, some definitions to start things off:
Par and No-Par Stock - The stated value of a share of common stock is referred to as
par value; however, all common stock does n

Chapter 10
Problems 4, 6, 10 ,18, 19
Input boxes in tan
Output boxes in yellow
Given data in blue
Calculations in red
Answers in green
NOTE: Some functions used in these spreadsheets may require that
the "Analysis ToolPak" or "Solver Add-in" be installed

Chapter 15
Problems 1-11 (odd problems)
Input boxes in tan
Output boxes in yellow
Given data in blue
Calculations in red
Answers in green
NOTE: Some functions used in these spreadsheets may require that
the "Analysis ToolPak" or "Solver Add-in" be install

Chapter 5
Bonds and Their Valuation
Mini-Case
Sam Strother and Shawna Tibbs are vice-presidents of Mutual of Seattle Insurance
Company and co-directors of the company's pension fund management division. A major
new client, the Northwestern Municipal Allia

Chapter 10
Problems 1-27 (odd problems)
Input boxes in tan
Output boxes in yellow
Given data in blue
Calculations in red
Answers in green
NOTE: Some functions used in these spreadsheets may require that
the "Analysis ToolPak" or "Solver Add-in" be install

Chapter 13
Problems 1-23 (odd problems)
Input boxes in tan
Output boxes in yellow
Given data in blue
Calculations in red
Answers in green
NOTE: Some functions used in these spreadsheets may require that
the "Analysis ToolPak" or "Solver Add-in" be install

Chapter 15
Problems 5, 8
Input boxes in tan
Output boxes in yellow
Given data in blue
Calculations in red
Answers in green
NOTE: Some functions used in these spreadsheets may require that
the "Analysis ToolPak" or "Solver Add-in" be installed in Excel.
To

HIGH QUALITY BONDS VS. LOW QUALITY BONDS
Would high quality bonds higher or lower coupons everything else the same?
Which one would be more sensitive to changes in the interest rates, high quality or low quality?
Everything else the same (term to maturity

Beta and Leverage
The WACC, APV and FTE methods (described in Chapter 18) determine the value of an investment
incorporating the tax shields associated with leverage. However, some other potential imperfections are
associated with leverage:
1)
1) Issuance

Chapter 13
Question 17
Input Area:
Bond 1:
Bonds outstanding
Settlement date
Maturity date
Annual coupon rate
Coupons per year
Bond price (% of par)
100,000
1/1/2000
1/1/2020
6.00%
2
108.00
Bond 2:
Bonds outstanding
Settlement date
Maturity date
Annual co

FIN 620
Long Term Financial Management
Week 1
1. Lecture Notes/Comments
In Chapter 10 we explore risk and return in the context of lessons from market history.
The performance of an investment (a certain amount of money invested) is judged by the
amount o

FIN 620
Long Term Financial Mangement
Week 2
1. Lecture Notes/Comments
In Chapter 13 we study the risk, cost of capital, and valuation for the firm and its
components. Firms finance themselves by selling different kinds of securities (broadly
debt and equ

Chapter 22
Problems 1-37 (odd problems)
Input boxes in tan
Output boxes in yellow
Given data in blue
Calculations in red
Answers in green
NOTE: Some functions used in these spreadsheets may require that
the "Analysis ToolPak" or "Solver Add-in" be install