Problem 99
Given
Solution Legend
Years
Sales
Operating income (Earnings Before Interest and Taxes)
Less: Cash tax payments
Net operating profits after taxes (NOPAT)
Plus: Depreciation expense
Less: Investments
Net Working Capital
New Capital (CAPEX)
Tota
PROBLEM 21
Discountrate
a.
b.
c.
d.
Given
Solution Legend
Solution:
10%
CashFlow
Year(s)
$500
$500
$500
$500
PresentValue
5
5
50
100
= Value given in problem
= Formula/Calculation/Analysis required
= Qualitative analysis or Short answer required
= Goal S
Problem 911ae
Given
Solution Legend
Growth rate in revenues and expenses
Debt (year 0)
Interest rate
Tax rate
Net working capital / Revenues
4.00%
$125 million
6.00%
34.00%
30.00%
= Value given in problem
= Formula/Calculation/Analysis required
= Qualit
Toy Co. Enterprise DCF Valuation
Valuation analysis of a strategic merger & acquisition  Minicase
Setting:
It is January 2010 and as the Chief Executive Officer of TM Toys
Inc. you are evaluating a strategic acquisition of Toy Co. Inc. Toy
Co. Inc. desi
PROBLEM 81
Given
Sale price
Square footage
Selling price/sq ft
Time on the market
Comp #1
$240,000.00
2,240
$107.14
61 days
Solution
a.
Average price per square foot
Estimated Value
b.
c.
Solution Legend
Comp #2
2121 Tartar Circle
$265,000.00
3,000
2,145
PROBLEM 41
Given
Solution Legend
Cost of debt
Tax Rate
Cost of equity
Debt/EV
6%
30%
14%
20%
= Value given in problem
= Formula/Calculation/Analysis required
= Qualitative analysis or Short answer required
= Goal Seek or Solver cell
= Crystal Ball Input
PROBLEM 101
Given
Assets (Invested Capital)
Borrowing rate
Return on Invested Capital
Good state
Bad state
Capital Structures
Alternative #1
Alternative #2
Solution Legend
$1,500,000.00
9.00%
= Value given in problem
= Formula/Calculation/Analysis requir
11
Differentiate the following terms/concepts:
a. Prospect and probability distribution
a prospect is a series of wealth outcomes, each of which is associated
with a probability
a prospect is a probability distribution of wealth outcomes, and can be
wri
1
Previous understanding of traditional finance theory can be seen across many
texts. According to Ackert and Deaves (2010), standard economics argues that there is
no uncertainty associated with risk and that people make independent decisions based
on al
FCFF= EBIT (1t) + depreciation  capital expenditure  change in working capital
FCFE= EBIT (1t) + depreciation  capital expenditure  change in working capital debt payments + new debt issued
Transaction
How
Effect on FCFE Effect on FCFD&E
An increase
An asset writedown: May mean lower forecasted net income in cases such as inventory valuation;
however, it may mean increased net income in the case of a write down of a depreciable asset. If the
asset is a depreciable asset carried on the firms balance
32
a.
Prospect A is preferred because of the decreased risk aversion for gains and the equal
expected returns.
b.
Although D has more risk, it is preferred because there are low probabilities for
positive payouts.
c.
These choices are not consistent with
Ackert & Deaves
Chapter 11 4
Assuming the manufacturing plant is from a large European city, I would bring the following
factors to the attention of the management team:

Wage and benefits. According to Ackert & Deaves (2011, p. 195), Experimental studie
93
Overconfidence leads to increased trading which can cause portfolio performance to decline.
Less disciplined traders were less successful than other traders, arguing that a lack of
discipline can stem from overconfidently ignoring new public informati
51
During April of 2003, the eBay market prices of $89.22, eBays stocks were growth
stocks (Shefrin, 2007, p. 25). Since growth stocks usually require higher expected returns than
the required return on equity, companies where ROE equals the required ROE
Palm Parameters
High initial ROE Palm
Longterm ROE Palm
rE Palm
# shares Palm stock
This worksheet is for you to
develop the FVE of Palm
when it pays out 100% of its
earnings as dividends, as part
of the PVGO approach.
Shortterm dividend payout ratio
Lo
PROBLEM 91
Solution Legend
Given
Discount rate
Year 5 multiple
Debt (0)
Year
1
2
3
4
5
15%
5
$400,000
Cash flows
$100,000
120,000
135,000
150,000
175,000
Solution
a. Enterprise Value
b. Equity Value
874,257.01
474,257.01
= Value given in problem
= Formul
PROBLEM 52
Given
Debt Ratio (current)
Equity Ratio (current)
Cost of Debt
Market Risk Premium
Equity Beta
Debt Beta
Risk Free Rate
Corporate Tax Rate
Solution Legend
30.0%
70.0%
6.0%
5.25%
1.20
0.29
4.5%
0.35
Solution
a. Cost of Equity
b. WACC
c.
Unlever
PROBLEM 42
Given
McD beta
risk free rate
MRP
McD debt
McD Ent Value
McD Debt beta
Solution Legend
0.56
4.20%
5%
15%
80%
0.2
Solution
MCD Ke
a.
7.00%
Unlevered Beta
b.
0.788
= Value given in problem
= Formula/Calculation/Analysis required
= Qualitative an
PROBLEM 61
Solution Legend
= Value given in problem
= Formula/Calculation/Analysis required
= Qualitative analysis or Short answer required
= Goal Seek or Solver cell
= Crystal Ball Input
= Crystal Ball Output
PROBLEM 34: TitMar Motor Company
Given
Assumptions and Predictions
Price per unit
Market share (%)
Market size (Year 1)
Growth rate in market size beginning in Year 2
Unit variable cost
Fixed cost
Tax rate
Cost of capital
Investment in NWC
Initial invest
PROBLEM 131
Solution Legend
= Value given in problem
= Formula/Calculation/Analysis required
= Qualitative analysis or Short answer required
= Goal Seek or Solver cell
= Crystal Ball Input
= Crystal Ball Output
PROBLEM 132
Given
First Plant
Assume perpe
Problem24
PROBLEM 2.4
Note: The text incorrectly labeled the column headings for 2009 and 2010. This solution has corrected the labels.
Given
TCM Petroleum
Sales
Cost of Goods Sold
Gross Profit
Selling, General, & Administrative Expense
Operating Income B
PROBLEM 121
Given
Quantity
Price (Year 0)
Phigh
Plow
Forward price
Extraction costs
Solution Legend
1000
$20
$25
$15
$20
$17
= Value given in problem
= Formula/Calculation/Analysis required
= Qualitative analysis or Short answer required
= Goal Seek or
PROBLEM 111
Given
Available gas (MCF)
Price of Gas (today)
Gas Price Next Year
High
Low
Forward price for next year
Development cost per MCF
Debt (on the property)
Interest rate on debt
Debt maturity
Asking price for Equity
Risk free rate of interest
Inc
PROBLEM 91
Solution Legend
Given
Discount rate
Year 5 multiple
Debt (0)
Year
1
2
3
4
5
15%
5
$400,000
Cash flows
$100,000
120,000
135,000
150,000
175,000
Solution
a. Enterprise Value
b. Equity Value
= Value given in problem
= Formula/Calculation/Analysis