FCF 7thE Chapter14 Stu

8/11/2019 FCF 7thE Chapter14 Stu

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Chapter 14Problems 7,8,11,14,21

Input boxes in tan

Output boxes in yellow

Given data in blue

Calculations in red

Answers in green


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Chapter 14Question 7

Input Area:

Asset value

Asset value in 1 yr

Asset value in 1 yr

Risk-free rate

Debt FV

Output Area:

a. E0 -$

b. D0 -$

Interest rate #DIV/0!

c. The value of the equity will increase. The

debt requires a higher return, therefore

the present value of the debt is less while

the value of the firm does not change.


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Input Area:

a. Asset value

Asset value in 1 yr

Asset value in 1 yr

Risk-free rate

Debt FV

Shares per contract

b. Asset value in 1 yr

Asset value in 1 yr

Output Area:

a. E0 #DIV/0!

D0 #DIV/0!

b. E0 #DIV/0!

The stockholders will prefer the new asset

structure because their potential gainincreases while their maximum potential

loss remains unchanged.


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Input Area:

Conversion price

Coupon rate

Par value

Nonconvertible debenture %

Settlement date

Maturity date

Market price of stock

Output Area:

a. Straight bond value #NUM!

Conversion ratio #DIV/0!

Conversion value #DIV/0!

The minimum value for this bond is the

maximum of the straight bond price or theconversion value, in this case #DIV/0!

b. Conversion premium #DIV/0!


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Input Area:

Units sold per year

Net cash flow per unit

Annual operating cash flow

Initial investment

Life time

Discount rate

Abandonment value

Output Area:

a. NPV -$

b. Q #DIV/0!

Abandon the project if Q < #DIV/0!

because NPV(abandonment) >

NPV(project CF's)

c. The abandonment value is the market value ofthe project. If you continue with the project in

one year, you forego this cash that could

have been used for something else.


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Input Area:

Initial investment

Tax rate

Net working capital

Discount rate

Pre-tax revenue

Pre-tax operating costs

# of years

Salvage value

Year 1

Year 2

Year 3

Year 4

Output Area:

Assuming the project lasts four years, the NPV is calculated as fo

Year 0 1

After-tax profit -$

Depr. Tax shield -$

Operating CF -$

Change in NWC -$ 0

Capital spending -$ 0Total cash flow -$ -$

Net present value -$

Abandoned after one year:

Year 0 1

After-tax profit -$

Depr. Tax shield -$

Operating CF -$

Change in NWC -$ -$


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Capital spending -$ #DIV/0!Total cash flow -$ #DIV/0!

Net present value #DIV/0!

Abandoned after two years:

Year 0 1

After-tax profit -$

Depr. Tax shield -$

Operating CF -$

Change in NWC -$ 0

Capital spending -$ 0Total cash flow -$ -$


Abandoned after three years:

Year 0 1After-tax profit -$

Depr. Tax shield -$Operating CF -$

Change in NWC -$ 0

Capital spending -$ 0

Total cash flow -$ -$



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lows:

2 3 4

-$ -$ -$

-$ -$ -$

-$ -$ -$

0 0 -$

0 0 0-$ -$ -$


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2

-$

-$

-$

-$

#DIV/0!#DIV/0!

2 3-$ -$

-$ -$-$ -$

0 -$

0 #DIV/0!

-$ #DIV/0!

FCF 7thE Chapter14 Stu

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