Input Area:
13-8:
Rwacc = .726 x 17% + .274 x 10% x .65 = 14.12%
Debt-to-equity ratio
Cost of equity
Cost of debt
Tax rate
45%
17%
10%
35%
Output Area:
WACC
14.12%
13-12:
a.
b.
Input Area:
Debt-to-equity ratio
WACC
Tax rate
Cost of equity
Aftertax cost of
The purchase method of accounting is one of the two primary methods that potentials
mergers and acquisitions are valued. The purchase method of accounting uses the sum of
the assets and liabilities that are under consideration for acquisition. Central to
In fulfillment of a requirement for FIN 620, Long-term Financial Management.
University of Maryland.
When will the project break-even on a simple cash basis?
Initial Cost - $1million
Reduce costs by $100,000
Useful life- 30 years
WACC = .08 * .5 + .12 * .
As per the Walters Approach, in the long run share price reflects only the present value of
expected dividends. Market price is dependent upon two factors firstly the quantum of
dividend and secondly the profitable opportunities available to the company i
Submitted to:
In fulfillment of a requirement for FIN 620, Long-term Financial Management.
University of Maryland.
Required Rate Of Return:
The required rate of return is the minimum annual percentage or return earned by an
investment that will induce inv
Number of shares repurchased
$ 5,000,000/25 = 200,000 shares
Number of Shares will be outstanding after the stock repurchase is completed
= 15,000,000 200,000 = 14,800,000 shares
Pros of repurchases1. A repurchase announcement may be viewed as a positive
1. Compute the P/E ratio and market capitalization for everyone.
2. Compute the MVA and EVA for everyone.
3. Compare and contrast the ratios; what do the ratios convey to the investing public?
The price earnings ratio (PE) values the company based on the
Step 2
Submitted to:
In fulfillment of a requirement for FIN 620, Long-term Financial Management.
University of Maryland.
Calculate WACC
WACC is the firms overall cost of capital. It helps by comparing returns from a specific
project and aiding in selecti
In fulfillment of a requirement for FIN 620, Long-term Financial Management.
University of Maryland.
=After tax cash flow purchasing After tax cash flow leasing
=(-$10,000*(1-.30) ($70,650/9)*(.30) = (-7,000) (7850*.30) = -7,000 2,355= -$9,355
Do you have
Submitted to:
In fulfillment of a requirement for FIN 620, Long-term Financial Management.
University of Maryland.
Compute Using Scenario 1:
Scenario #1: Use 10% cost of capital in computations and compute the good result and poor
result NPVs. Calculate t
16-4:
Input Area:
Plan I:
Shares outstanding
a.
b.
240,000
Plan II:
Shares outstanding
Debt outstanding
Interest rate
160,000
$3,100,000
10%
EBIT
EBIT
Plan I
Plan II
EBIT
$750,000.00 $750,000.00
Interest
$0.00
$310,000.00
NI
$750,000.00 $440,000.00
EPS
$3
15-8:
Input area:
Call price
One year interest rates
$1,250
11.00%
Face value: $1,000
P= .60 * $1,250 + .40 * $1,000 = $1,150
P= 1,000 + 1,000/0.13 = $8,692.30
Probability of rate in one year
Rate in one year
60%
13%
Probability of rate in one year
Rate i
Chapter 20
Question 14
Input Area:
Stock price
Shares outstanding
Amount raised
$
$
a. Old shares to new shares
b. Old shares to new shares
27
1,000,000
2,000,000
2
4
Output Area:
a. New shares
Price ex-right
Subscription price
Value of a right
500,000
$
Chapter 20
Question 4
Input Area:
Price
Undervalued IPO
Overvalued IPO
# of shares
1/2 # of shares
$
$
$
40
8
5
1,000
500
Output Area:
If you receive 1000 shares each, the profit
is:
$
3,000
Expected profit
$
(1,000)
This is an example of the winner's cur
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 13
Problems 2, 5, 7, 11, 14
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 i
Chapter 15
Problems 6, 9
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
Chapter 16
Problems 2, 6, 12, 16
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 E
Chapter 17
Problems 1, 2, 3, 6, 10
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
Michael L. Robinson
Dr. Michael G. McMillan
FIN 620 Midterm Exam
Due: 3/4/2012
Answer sheet
1. Average return = 6.59%; Variance = 3.35%
2. Discount rate = .1564 or 15.64%
3. Asset beta = .48
4. Expected return of companys common stock = 11.4%
5. Corporati
UNIVERSITY OF MARYLAND UNIVERSITY COLLEGE
FINC 620 LONG TERM FINANCIAL MANAGEMENT
Task 3
To illustrate and further support our strategic financial planning systems we
need to show the CFO and management team an example of the application of
the previously