CONFIRMING PAGES
PART ONE OVERVIEW
1
Introduction to
Corporate Finance
Compensation of corporate executives in the United States contin-
OPENING CASE
ues to be a hot-button issue. Many have argued that CEO pay has
grown to exorbitant levels (at least in s
CHAPTER 5
THE ADJUSTED COST OF CAPITAL AND WEIGHTED AVERAGE COST OF
CAPITAL DISCOUNTED CASH FLOW VALUATION METHODS
SOLUTIONS TO EXERCISES AND PROBLEMS
P5.1
Which Valuation Method to Use: Assume you were going to value the companies
described below. State
CHAPTER 16
MERGERS AND ACQUISITIONS
SOLUTIONS TO EXERCISES AND PROBLEMS
P16.1 Valuing Synergies Oracle Acquisition of PeopleSoft
Weighted Average Cost of Capital Valuation of Synergies:
Tax Rate =
12.00%
40.0%
g=
-10.00%
Year 1
(in $US millions)
Total Rev
CHAPTER 2
FINANCIAL STATEMENT RELATIONS
SOLUTION TO EXERCISES AND PROBLEMS
P2.1
Cisco Systems, Inc.:
Exhibit P2.1: Rates of Return and Components for Cisco Systems, Inc.
CISCO Systems, Inc.
Return on Assets
Return on Equity
Unlevered Profit Margin
Levered
CHAPTER 14
MARKET MULTIPLE MEASUREMENT AND IMPLEMENTATION
SOLUTIONS TO EXERCISES AND PROBLEMS
P14.1
Market Value of Debt:
Price
Market Value of Debt
Market Value of Preferred:
Price
Market Value of Preferred:
Market Value of Options:
Price
Shares
Market V
CHAPTER 4
CREATING A FINANCIAL MODEL
SOUTIONS TO EXERCISES AND PROBLEMS
4.1
Solution
Total
Quantity t-1 Price t-1 Revenue t-1 Quantity t
a.
b.
c.
d.
e.
10,000 $ 10.00
?-1
?-1
?-2
$ 750,000
10,000
?-1
?-2
5,000
?-1
?-2
?-1
?-2
?-3
11,000
?-2
?-3
60,000
?-3
CHAPTER 3
FREE CASH FLOW BASICS AND THE STATEMENT OF CASH FLOWS
SOLUTIONS TO EXERCISES AND PROBLEMS
P3.1
Tim Schlindwein & Company (Cash Flow Statement and Free Cash Flow
Schedule): We provide income statements and balance sheets for Tim Schlindwein &
Com
CHAPTER 10
THE EFFECTS OF FINANCIAL LEVERAGE ON THE COST OF CAPITAL
SOLUTIONS TO EXERCISES AND PROBLEMS
P10.1 Levering the Unlevered Cost of Capital
rITS = rUA
Option 1
Equity Cost of Capital
Weighted Average Cost of Capital
Value of the Firm - WACC
$
Equ
CHAPTER 11
MEASURING THE WEIGHTED AVERAGE COST OF CAPITAL
AND EXPLORING OTHER CAPITAL STRUCTURE ISSUES
SOLUTIONS TO EXERCISES AND PROBLEMS
P11.1 Measuring the Weighted Average Cost of Capital
Market Value of Debt:
Price
Market Value of Debt
$
100
6,000 $
CHAPTER 6
MEASURING CONTINUING VALUE USING
THE CONSTANT-GROWTH PERPETUITY MODEL
EXERCISES AND PROBLEMS
P6.1
Present Value Weighted Average Growth Rate:
a.
Discounted Cash Flow Valuation
Cost of Capital
10.0%
Growth Rate for Free Cash Flow for Continuing V
CHAPTER 1
INTRODUCTION TO VALUATION
SOLUTIONS TO EXERCISES AND PROBLEMS
P1.1
Apple Inc.s (Apple)
Apple Inc.
Economic Balance Sheet
As of 30 September 2011
Resources (Assets)
Value of the Unlevered (All EquityFinanced) Business Operations without
Excess As
CHAPTER 9
MEASURING THE COST OF CAPITAL FOR DEBT, PREFERRED
AND OTHER NON-COMMON EQUITY SECURITIES
SOLUTIONS TO EXERCISES AND PROBLEMS
P9.1
Debt Cost of Capital and Promised Yield
Assume the company has a debt agreement with the following characteristics:
CHAPTER 8
ESTIMATING THE EQUITY COST OF CAPITAL
SOLUTIONS TO EXERCISES AND PROBLEMS
P8.1
Calculating Beta
Standard Deviation of the Market Return
Expected Market Risk Premium
0.055
0.065
Firm 1
Standard Deviation of Firm's Return
Covariance of Firm's Retu
SHARE-BASED COMPENSATION
AND
EARNINGS PER SHARE
19 - 1
Share-Based Compensation
Stock Award Plans
Compensation:
Salary
Stock awards
Restricted stock plans
Usually tied to continuing employment,
Compensation is market price at date of grant,
Compensat
Statement of Cash Flows
21 - 1
Cash Flow Statement
The purpose of the Cash Flow Statement is to explain
the change in cash during the period.
Format: Indirect Method (Most common)
Cash from
Operating
Activities
+
Cash from
Investing
Activities
+
Cash from
CHAPTER 7
THE EXCESS EARNINGS VALUATION METHOD
SOLUTIONS TO EXERCISES AND PROBLEMS
P7.1
Excess Earnings Valuation Two-Year Investment Life The One-Shot T-Shirt
Company
One-Shot Tee-Shirt Company
Cash Flow Statement and Comparison to Earnings
Year 0
Earnin
CHAPTER 12
INVENTORY CONTROL MODELS
DISCUSSION QUESTIONS
12-1. Why is inventory an important consideration for managers?
12-2. What is the purpose of inventory control?
12-3. Why wouldnt a company always store large quantities of
inventory to eliminate sh
Website
Known Parameters
Revenue each time accessed
Fixed cost
Cost per hit
$0.06
$15,000.00
$0.02
Variables
Times of accessed
375000
Results
Total revenue
Fixed Cost
Total variable cost
Total cost
Profit
$22,500.00
$15,000.00
$7,500.00
$22,500.00
$0.00
A decorating store specializing in do-it-your-self home decorators must
decide how many information packets to prepare for the summer
decorating season. The store managers know they will require at least
400 copies of their popular painting packet. They b
Checked
Test 19
Case (change in risk)
Projections for a firm whose stock you wish to value:
Years 1 - 7
Years 8 - 14
EPS
2.01
4.02
Payout Ratio
0.28
0.32
Stock's beta is
YTM on T-bond is
Stock premium is
Years 15 - 24
8.08
0.52
0.6
4.8%
5.0%
Discount the
41af0ee52e023c9577b7d69a1b669a360f9fa5f7.xlsx
Checked
Test 19
Amortization (percent)
Beginning balance on a loan is $ 1,600
Annual rate is 11.2%
You want to cut your debt in half by the end of month 21
In month 14 you plan to make a 'double' payment.
Ques
Step one - answer all questions in the document
Step two - prepare a 12 minute presentation comparing this firm's financials with industry averages
How did firm do vs industry averages?
What do you recommend the firm do to improve their financial state in
Class Two
Corporate
Valuation
Creating a
Financial Model
Cambridge Business Publishers 2014
1
Corporate Valuation by Holthausen & Zmijewski
Discussion Topics
Cambridge Business Publishers 2014
2
Corporate Valuation by Holthausen & Zmijewski
Steps in the
Class Three
Corporate
Valuation
The Excess
Earnings Valuation
Cambridge Business Publishers 2014
1
Corporate Valuation by Holthausen & Zmijewski
Discussion Topics
Cambridge Business Publishers 2014
2
Corporate Valuation by Holthausen & Zmijewski
Excess
CHAPTER 12
THE USES OF OPTION PRICING MODELS IN VALUATION
SOLUTION TO EXERCISES AND PROBLEMS
P12.1 Valuation of a Basic Call Option
Assumptions for Option Valuation:
Stock Price
Exercise Price
Annualized Standard Deviation
Dividend Yield
b.
$ 20.00 PE
$
Chapter 8 I Esuniatng the Equity Cost of Capital
biases of analysts and if you control for the fact that some analyst forecasts are stale at any
the known
time, implied cost of capital measures have desirable properties. However, without controls
iven poi
Chapter 4 I Creatcng n Financlai Mode
156
which includes improvement to existing bLrildiiigs I is equal to capital expenditures iii Year I of $11 6.25
mtflion divided by 20 years. hicli is equal IL) 35.8 million. We perlorm tim same caiculatton 10 measure
CHAPTER 15
LEVERAGED BUYOUT TRANSACTIONS
QUESTIONS, EXERCISES, AND PROBLEMS
P15.1 Sources and Uses, Capital Structure, and Deal Terms
Current Stock Price
Deal Premium
Deal Stock Price
Number of Fully Diluted Shares Outstanding
Purchase Price of Equity
P/