After spending $3 million on research, Better Mousetraps has developed a new trap. The
project requires an initial investment in plant and equipment of $6 million. This investment
will be depreciated straight-line over five years to a value of zero, but,
Initial investment
shipping and installation
increase in working capital
Initial Outlay
$
$
$
$
200,000.00
25,000.00
200,000.00
425,000.00
Year
Revenue
Operating Costs
Depeciation
EBIT
Taxes (40%)
Net Income
Depreciation
NOWC
Incremental NOWC
Recovery of
Template for Chapter 21 Problems
Self Test Problem
Compressed Adjusted Present Value Model
growth rate
4%
rsu
8%
Tax rate
40%
Debt
$
500
Interest rate
5%
a.
Year
FCF
H Value
b.
Vu
c.
Interest
Tax shelter
H Value
Total TSs
Val Ts
Val Ops L
d.
e.
0
1
$
M&M
Western Fabrics Problem Template
Rental Payment
Equipment cost
Loan rate
Tax Rate
MACRS
Maintenance Expense
Asset selling price
Book Value of Asset
$
70,000 First payment at t = 0. Five payments in total
$
250,000
10%
40%
5 Year Asset
$
20,000 Paid at end
Template for Waldrop Corporation Leasing Problem
Waldrop Corporation Problem
Tools cost
Term
Interest rate
Tax rate
Maintenance costs
Lease payments
Costs of Owning
Year
Interest Payments
After tax
Principal Repayment
Total Financing Costs
4800
3 years
0.
Mini Case on Capital Structure
Michael Dulac
Part B.
(1)
EBIT
Debt
RSU
$500,000.00
$1,000,000.00
14%
Rd
8%
VU
$3,571,428.57
SU
$3,571,428.57
RSU
14%
VL
$3,571,428.57
SL
$2,571,428.57
RSL
16.33%
WACC
14%
(2)
Debt/Value Ratio
0%
25%
20%
20%
40%
60%
15%
Cost
Problem 26-4
Tax Imposed
NPV
Tax not imposed
NPV
E(NPV)
Tax Imposed
NPV
E(NPV)
Option to abandon.
Decision Tree Analysis
Analysis if build the hotel today when there is a 50% chance of a tax being imposed.
0
1
2
3
4
5
6
7
8
9
10
11
12
-6.2
0.6
0.6
0.6
0.6
Problem 11-18
Equipment Cost
Unit Sales Per Year
Net Working Capital
Unit Selling Price
$
Unit Variable Costs
$
Nonvariable costs
$
All increase at 3% per year
Year
Sales
Variable Costs
Nonvariable costs
EBIT
NOPAT
Depreciation Expense
Tax Shelter on Depr
Abington-Hill Toys, Inc. First quarter Cash Budget 1992
October
Sales
$
Schedule of Collections
Month t (40%)
Nov
100,000.00 $
Dec
100,000 $
150,000
$
Jan
90,000 $
Feb
90,000
March
April
May
# $ 100,000 $ 110,000 $
June
July
100,000 $ 90,000
40,000.0 $
60
Instructions for Abington Hill Case I
Use these rather than the questions written at the end of the case.
Conduct a basic financial statement analysis of the company. Calculate ratios and compare them to
industry averages provided. Note that I have update
Class Discussion Concept Questions for Topic #1 Introduction to Valuation
1. True or False? If a firm's goal is to maximize its earnings per share, this is the best way to
maximize the price of the common stock and thus shareholders' wealth.
2. Which of t
Financial Statement Concept Questions
1. Consider the balance sheet of Wilkes Industries as shown below. Because Wilkes has $800,000
of retained earnings, the company would be able to pay cash to buy an asset with a cost of
$200,000.
Cash
$ 50,000
Account
After spending $3 million on research, Better Mousetraps has developed a new trap. The
project requires an initial investment in plant and equipment of $6 million. This investment
will be depreciated straight-line over five years to a value of zero, but,
Template for Additi0onal Capital Budgeting Problems
PROBLEM #1
Equipment Investment
Working Capital
Year
$
20,000
$
5,000
$
25,000
Discount Rate
After tax net profit ($7000*.6)
Depreciation tax shelter
0.12
PROBLEM #2
4,200
$
800
$
NPV
PINDEX
IRR
$
5,000
In Class Exercises on Capital Budgeting
Economic value runs out before item fully depreciated. Amount left over become book value. Sell for price. Gain or loss. Then taxed. Non operating after tax cash flow is sale minus tax.
Equipment & Fixtures
New Work
Risk Assessment in Capital Budgeting
Assigned Problem 11 - 11 Scenario Analysis
Scenario
Recession
Below average
Average
Above average
Boom
Expected value
Variance
Std Deviation
CV
Probability
NPV
5%
20%
50%
20%
5%
Deviation
Squared
Product
($70.00)
($25.