公司理财课后练习答案

第4章第8,26

Thecashflowsforthisproblemoccurmonthly,andtheinterestrategivenistheEAR.

Sincethecashflowsoccurmonthly,wemustgettheeffectivemonthlyrate.Onewayto

dothisistofindtheAPRbasedonmonthlycompounding,andthendivideby12.So,the

pre-retirementAPRis:

EAR=.11=[1+(APR/12)]12-1;APR=12[(1.1l)l/12-1]=10.48%

Andthepost-retirementAPRis:

EAR=.08=[1+(APR/12)]12-1;APR=12[(1.08)l/12-1]=7.72%

First,wewillcalculatehowmuchheneedsatretirement.Theamountneededat

retirementisthePVofthemonthlyspendingplusthePVoftheinheritance.ThePVof

thesetwocashflowsis:

PVA=$20,000{l-[l/(l+.0772/12严°)]}/(.0772/12)=$2,441,554.61

PV=$1,000,000/(I+.08产=$214,548.21

So,atretirement,heneeds:

$2,441,554.61+214,548.21=$2,656.102.81

Hewillbesaving$1,900permonthforthenext10yearsuntilhepurchasesthecabin.

Thevalueofhissavingsafter10yearswillbe:

FVA=$l,900[{[1+(.1048/12)]12(10)-l}/(.1048/12)]=$400,121.62

Afterhepurchasesthecabin,theamounthewillhaveleftis:

$400,121.62-320,000=$80,121.62

Hestillhas20yearsuntilretirement.Whenheisreadytoretire,thisamountwillhave

grownto:

FV=$80,121.62[l+(.1048/12)]I2(20)=$646,965.50

So,whenheisreadytoretire,basedonhiscurrentsavings,hewillbeshort:

$2,656,102.81-645,965.50=$2,010,137.31

ThisamountistheFVofthemonthlysavingshemustmakebetweenyears10and30.

So,findingtheannuitypaymentusingtheFVAequation,wefindhismonthlysavings

willneedtobe:

FVA=$2,010,137.31=C[{[1+(.1048/12)]12(20)-1}/(.1048/12)]

C=$2,486.12

第5章Pl09,24

,a.TheprofitabilityindexisthePVofthefuturecashflowsdividedbytheinitial

investment.Theprofitabilityindexforeachprojectis:

2

PIA=[$140,000/1.12+$140,000/1.12]/$200,000=1.18

PIB=[$260,000/1.12+$260,000/1.122]/$400,000=1.10

PIc=[$150,000/1.12+$120,000/1.122]/$200,000=1.15

b.TheNPVofeachprojectis:

2

NPVA=-$200,000+$140,000/1.12+$140,000/1.12

NPVA=$36,607.14

2

NPVB=-$400,000+$260,000/1.12+$260,000/1.12

NPVB=$39,413.27

2

NPVC=-$200,000+$150,000/1.12+$120,000/1.12

NPVC=$29,591.84

c.AcceptprojectsA,B,andC.Sincetheprojectsareindependent,acceptallthree

projectsbecausetherespectiveprofitabilityindexofeachisgreaterthanone.

d.BNPV或增量PI

e.AB

第6章P128J3题

Wewillusethebottom-upapproachtocalculatetheoperatingcashflowforeachyear.

Wealsomustbesuretoincludethenetworkingcapitalcashflowseachyear.So,thenet

incomeandtotalcashfloweachyearwillbe:

Year1Year2Year3Year4

Sales$8,500$9,000$9,500$7,000

Costs1,9002,0002,2001,700

Depreciation4,0004,0004,0004,000

EBT$2,600$3,000$3,300$1,300

Tax8841,0201,122442

Netincome$1,716$1,980$2,178$858

OCF$5,716$5,980$6,178$4,858

Capitalspending-$16,000

NWC-200-250-300-200950

Incrementalcashflow-$16,200$5,466$5,680$5,978$5,808

TheNPVfortheprojectis:

NPV=-$16,200+$5,466/1.12+$5,680/1.122+$5,978/1.123+$5,808/1.124

NPV=$1,154.53

第7章P147J7题

WeneedtocalculatetheNPVofeachoption,andchoosetheoptionwiththehighest

NPV.So,theNPVofgoingdirectlytomarketis:

NPV=Csuccess(Prob,ofSuccess)

NPV=$1,500,000(0.50)

NPV=$750,000

TheNPVofthefocusgroupis:

NPV=Co+Csuccess(Prob,ofSuccess)

NPV=-$135,000+$1,500,000(0.65)

NPV=$840,000

AndtheNPVofusingtheconsultingfirmis:

NPV=Co+Csuccess(Prob,ofSuccess)

NPV=-$400,000+$1,500,000(0.85)

NPV=$875,000

ThefirmshouldusetheconsultingfirmsincethatoptionhasthehighestNPV.

第8章P171,25题

Thepriceofanybond(orfinancialinstrument)isthePVofthefuturecashflows.Even

thoughBondMmakesdifferentcouponspayments,tofindthepriceofthebond,wejust

findthePVofthecashflows.ThePVofthecashflowsforBondMis:

PM=$800(PVIFA4%j6)(PVIF4%j2)+$1,000(PVIFA4O^I2)(PVIF4%,28)+

$2O,OOO(PVIF4%,4O)

PM=$13,117.88

Noticethatforthecouponpaymentsof$800,wefoundthePVAforthecoupon

payments,andthendiscountedthelumpsumbacktotoday.

BondNisazerocouponbondwitha$20,000parvalue;therefore,thepriceofthebond

isthePVofthepar,or:

PN=$2O,OOO(PVIF4%,4O)=$4,165.78

第9章P191,7题

Hereweneedtofindthedividendnextyearforastockexperiencingdifferentialgrowth.

Weknowthestockprice,thedividendgrowthrates,andtherequiredreturn,butnotthe

dividend.First,weneedtorealizethatthedividendinYear3isthecurrentdividend

timestheFVIF.ThedividendinYear3willbe:

D3=Do(1.30)3

AndthedividendinYear4willbethedividendinYear3timesoneplusthegrowthrate,

or:

D4=Do(1.30)3(1.18)

Thestockbeginsconstantgrowthafterthe4thdividendispaid,sowecanfindtheprice

ofthestockinYear4asthedividendinYear5,dividedbytherequiredreturnminusthe

growthrate.TheequationforthepriceofthestockinYear4is:

P4=DMl+g)/(R—g)

NowwecansubstitutethepreviousdividendinYear4intothisequationasfollows:

P4=DO(1+(1+g2)(1+g3)/(R-g3)

3

P4=Do(1.30)(1.18)(1.08)/(.13-.08)=56.00D()

Whenwesolvethisequation,wefindthatthestockpriceinYear4is56.00timesas

largeasthedividendtoday.Nowweneedtofindtheequationforthestockpricetoday.

ThestockpricetodayisthePVofthedividendsinYears1,2,3,and4,plusthePVof

theYear4price.So:

223334

Po=Do(1.3O)/1.13+DO(1.3O)/1.13+Do(1.3O)/1.13+Do(1.3O)(1.18)/1.13+

56.OODo/1.134

WecanfactoroutD()intheequation,andcombinethelasttwoterms.Doingso,weget:

Po=$65.00=D(){1.30/1.13+1.302/l.132+1.303/l.133+[(1.3O)3(1.18)+56,00]/1.134)

Reducingtheequationevenfurtherbysolvingallofthetermsinthebraces,weget:

$65=$39.86D0

Do=$65.00/$39.86=$1.63

Thisisthedividendtoday,sotheprojecteddividendforthenextyearwillbe:

Di=$1.63(1.30)=$2.12

第10章P212,15-17

15.a.Tofindtheaveragereturn,wesumallthereturnsanddividebythenumberof

returns,so:

Arithmeticaveragereturn=(.34+.16+.19-.21+.08)/5

Arithmeticaveragereturn=.1120or11.20%

b.Usingtheequationtocalculatevariance,wefind:

Variance=l/4[(.34-.112)2+(.16-.H2)2+(.19-.112)2+(-.21-.112,+

(.08-.112)2]

Variance=0.041270

So,thestandarddeviationis:

Standarddeviation=(0.041270)12

Standarddeviation=0.2032or20.32%

16.a.Tocalculatetheaveragerealreturn,wecanusetheaveragereturnoftheassetand

theaverageinflationrateintheFisherequation.Doingso,wefind:

(1+R)=(1+r)(l+h)

r=(1.1120/1.042)-1

r=.0672or6.72%

b.Theaverageriskpremiumissimplytheaveragereturnoftheasset,minusthe

averagerealrisk-freerate,so,theaverageriskpremiumfbrthisassetwouldbe:

RP=R-Rf

RP=.1120-,0510

RP=.0610or6.10%

17.Wecanfindtheaveragerealrisk-freerateusingtheFisherequation.Theaveragereal

risk-freeratewas:

(1+R)=(1+r)(l+h)

rf=(1.051/1.042)-1

rf=.0086or0.86%

Andtocalculatetheaveragerealriskpremium,wecansubtracttheaveragerisk-freerate

fromtheaveragerealreturn.So,theaveragerealriskpremiumwas:

rp=r-rf=6.72%-0.86%

rp=5.85%

18.Applythefive-yearholding-periodreturnformulatocalculatethetotalreturnofthe

stockoverthefive-yearperiod,wefind:

5-yearholding-periodreturn=[(1+Ri)(l+R2)(l+R3XI+&)(1+R5)]-1

5-yearholding-periodreturn=[(1+.1843)(1+.1682)(1+.0683)(1+.3219)(1-.1987)]

-1

5-yearholding-periodreturn=0.5655or56.55%

22.Tocalculatethearithmeticandgeometricaveragereturns,wemustfirstcalculatethe

returnforeachyear.Thereturnforeachyearis:

Ri=($55.83-49.62+0.68)/$49.62=.1389or13.89%

R2=($57.03-55.83+0.73)/$55.83=.0346or3.46%

R3=($50.25-57.03+0.84)/$57.03=-.1042or-10.42%

R4=($53.82-50.25+0.91)/$50.25=.0892or8.92%

R5=($64.18-53.82+1.02)/$53.82=.2114or21.14%

Thearithmeticaveragereturnwas:

RA=(0.1389+0.0346-0.1042+0.0892+0.2114)/5

RA=0.0740or7.40%

Andthegeometricaveragereturnwas:

RG=[(1+.1389)(1+.0346)(1-.1042)(1+.0892)(1+.2114)]1/5-1

RG=0.0685or6.85%

第11章P240：27

a.Again,wehaveaspecialcasewheretheportfolioisequallyweighted,sowecan

sumthereturnsofeachassetanddividebythenumberofassets.Theexpected

returnoftheportfoliois:

E(RP)=(.103+.05)/2=.0765or7.65%

b.Weneedtofindtheportfolioweightsthatresultinaportfoliowithapof0.50.We

knowthepoftherisk-freeassetiszero.Wealsoknowtheweightoftherisk-free

assetisoneminustheweightofthestocksincetheportfolioweightsmustsumto

one,or100percent.So:

pp=0.50=ws(.92)+(l-ws)(0)

0.50=,92ws+0-Ows

ws=0.50/.92

ws=.5435

And,theweightoftherisk-freeassetis:

WRf=l—.5435=4565

c.Weneedtofindtheportfolioweightsthatresultinaportfoliowithanexpected

returnof9percent.Wealsoknowtheweightoftherisk-freeassetisoneminusthe

weightofthestocksincetheportfolioweightsmustsumtoone,or100percent.So:

E(RP)=.09=.103ws+.05(1-ws)

.09=.103ws+.05-.05ws

ws=.7547

So,thepoftheportfoliowillbe:

PP=.7547(.92)+(1-.7547)(0)=0.694

d.Solvingforthepoftheportfolioaswedidinparta,wefind:

P

P=1.84=ws(.92)+(1-ws)(0)

ws=1.84/.92=2

WRf=1-2=-l

Theportfolioisinvested200%inthestockand-100%intherisk-freeasset.This

representsborrowingattherisk-freeratetobuymoreofthestock.

第12章P256：12

a.Ifmisthesystematicriskportionofreturn,then:

GNP

m-PAGNP+PinnationAInflation+prAInterestrates

/n=.0000479($13,601-13,275)-1.30(3.20%-3.90%)-.67(4.70%-5.20%)

a=2.81%

b.Theunsystematicreturnisthereturnthatoccursbecauseofafirmspecificfactor

suchasthebadnewsaboutthecompany.So,theunsystematicreturnofthestockis

-2.6percent.Thetotalreturnistheexpectedreturn,plusthetwocomponentsof

unexpectedreturn:thesystematicriskportionofreturnandtheunsystematic

portion.So,thetotalreturnofthestockis:

R=R+/n+8

R=10.80%+2.81%-2.6%

R=11.01%

P257:16

a.Themarketmodelisspecifiedby:

R=R+B(RM-RM)+e

soapplyingthattoeachStock:

StockA:

RA=RA+PA(RM—RM)+'A

A

R=10.5%+1.2(RM-14.2%)+£A

StockB:

RB=RB+BB(RM-RM)+£B

B

R=13.0%+0.98(RM-14.2%)+8B

StockC:

Rc=Rc+PC(RM-RM)+£C

Rc=15.7%+1.37(RM-14.2%)+£C

b.Sincewedon'thavetheactualmarketreturnorunsystematicrisk,wewillgeta

formulawiththosevaluesasunknowns:

Rp—.3ORA+.45RB+.25Rc

RP=.30(10.5%+1.2(RM-14.2%)+£A]+.45[13.0%+0.98(RM-14.2%)+8B]

+.25[15.7%+1.37(RM-14.2%)+8C]

RP=.30(10.5%)+.45(13%)+.25(15.7%)+[.30(1.2)+.45(.98)+.25(1.37)](RM-

14.2%)

+.308A+.45£B+.258c

RP=12.925%+1.1435(RM-14.2%)+.30sA+453+.25EC

c.Usingthemarketmodel,ifthereturnonthemarketis15percentandthesystematic

riskiszero,thereturnforeachindividualstockis:

RA=10.5%+1.20(15%-14.2%)

RA=11.46%

RB=13%+0.98(15%-14.2%)

RB=13.78%

Rc=15.70%+1.37(15%-14.2%)

Rc=16.80%

Tocalculatethereturnontheportfolio,wecanusetheequationfrompartb,so:

RP=12.925%+1.1435(15%-14.2%)

RP=13.84%

Alternatively,tofindtheportfolioreturn,wecanusethereturnofeachassetandits

portfolioweight,o亡

Rp—XjRi+X2R2+X3R3

RP=.30(11.46%)+.45(13.78%)+.25(16.80%)

RP=13.84%

第13章

P280：11,12,13,14,18,19

11.Withtheinformationgiven,wecanfindthecostofequityusingthedividendgrowth

model.Usingthismodel,thecostofequityis:

RE=[$2.40(1.055)/$52]+.055=.1037or10.37%

12.WehavetheinformationavailabletocalculatethecostofequityusingtheCAPMand

thedividendgrowthmodel.UsingtheCAPM,wefind:

RE=.05+0.85(.08)=.118()or11.80%

Andusingthedividendgrowthmodel,thecostofequityis

RE=[$1.60(1.06)/$37]+.06=.1058or10.58%

Bothestimatesofthecostofequityseemreasonable.Ifwerememberthehistorical

returnonlargecapitalizationstocks,theestimatefromtheCAPMmodelisaboutthe

sameasthehistoricalaverage,andtheestimatefromthedividendgrowthmodelisabout

onepercentlowerthanthehistoricalaverage,sowecannotdefinitivelysayoneofthe

estimatesisincorrect.Giventhis,wewouldusetheaverageofthetwo,so:

RE=(.1180+.1058)/2=.1119or11.19%

13.a.ThepretaxcostofdebtistheYTMofthecompany'sbonds,so:

Po=$1,080=$35(PVIFAR%,46)+$l,000(PVIFR%,46)

R=3.167%

YTM=2x3.167%=6.33%

b.Theaftertaxcostofdebtis:

RD=.0633(1-.35)=.0412or4.12%

c.Theaftertaxrateismorerelevantbecausethatistheactualcosttothecompany.

14.UsingtheequationtocalculatetheWACC,wefind:

WACC=.70(.15)+.30(.08)(l-.35)=.1206or12.06%

18.a.Heshouldlookattheweightedaverageflotationcost,notjustthedebtcost.

b.Theweightedaverageflotationcostistheweightedaverageoftheflotationcosts

fordebtandequity,so:

fT=.05(.75/1.75)+.08(1/1.75)=.0671or6.71%

c.Thetotalcostoftheequipmentincludingflotationcostsis:

Amountraised(1-.0671)=$20,000,000

Amountraised=$20,000,000/(1-.0671)=$21,439,510

Evenifthespecificfundsareactuallybeingraisedcompletelyfromdebt,the

flotationcosts,andhencetrueinvestmentcost,shouldbevaluedasifthefirm's

targetcapitalstructureisused.

19.Usingthedebt-equityratiotocalculatetheWACC,wefind:

WACC=(.65/1.65)(.055)+(1/1.65)(.15)=.1126or11.26%

Sincetheprojectisriskierthanthecompany,weneedtoadjusttheprojectdiscountrate

fortheadditionalrisk.Usingthesubjectiveriskfactorgiven,wefind:

Projectdiscountrate=11.26%+2.00%=13.26%

WewouldaccepttheprojectiftheNPVispositive.TheNPVisthePVofthecash

outflowsplusthePVofthecashinflows.Sincewehavethecosts,wejustneedtofind

thePVofinflows.Thecashinflowsareagrowingperpetuity.Ifyouremember,the

equationforthePVofagrowingperpetuityisthesameasthedividendgrowthequation,

so:

PVoffutureCF=$3,500,000/(.1326-,05)=$42,385,321

Theprojectshouldonlybeundertakenifitscostislessthan$42,385,321sincecostsless

thanthisamountwillresultinapositiveNPV.

第15章

P322：2,4,6,12,15,16,21

2.Thedifferencesbetweenpreferredstockanddebtare:

a.Thedividendsonpreferredstockcannotbedeductedasinterestexpensewhen

determiningtaxablecorporateincome.Fromtheindividualinvestor'spointofview,

preferreddividendsareordinaryincomefbrtaxpurposes.Forcorporateinvestors,

70%oftheamounttheyreceiveasdividendsfrompreferredstockareexemptfrom

incometaxes.

h.Incaseofliquidation(atbankruptcy),preferredstockisjuniortodebtandseniorto

commonstock.

c.Thereisnolegalobligationforfirmstopayoutpreferreddividendsasopposedto

theobligatedpaymentofinterestonbonds.Therefore,firmscannotbeforcedinto

defaultifapreferredstockdividendisnotpaidinagivenyear.Prefeneddividends

canbecumulativeornon-cumulative,andtheycanalsobedeferredindefinitely(of

course,indefinitelydeferringthedividendsmighthaveanundesirableeffectonthe

marketvalueofthestock).

4.Thereturnonnon-convertiblepreferredstockislowerthanthereturnoncorporate

bondsfortworeasons:1)Corporateinvestorsreceive70percenttaxdeductibilityon

dividendsiftheyholdthestock.Therefore,theyarewillingtopaymoreforthestock;

thatlowersitsreturn.2)Issuingcorporationsarewillingandabletoofferhigherreturns

ondebtsincetheinterestonthedebtreducestheirtaxliabilities.Preferreddividendsare

paidoutofnetincome,hencetheyprovidenotaxshield.

Corporateinvestorsaretheprimaryholdersofpreferredstocksince,unlikeindividual

investors,theycandeduct70percentofthedividendwhencomputingtheirtaxliabilities.

Therefore,theyarewillingtoacceptthelowerreturnthatthestockgenerates.

6.Therearetwobenefits.First,thecompanycantakeadvantageofinterestratedeclinesby

callinginanissueandreplacingitwithalowercouponissue.Second,acompanymight

wishtoeliminateacovenantforsomereason.Callingtheissuedoesthis.Thecosttothe

companyisahighercoupon.Aputprovisionisdesirablefromaninvestor'sstandpoint,

soithelpsthecompanybyreducingthecouponrateonthebond.Thecosttothe

companyisthatitmayhavetobuybackthebondatanunattractiveprice.

12.Whenacompanyhasdualclassstock,thedifferenceintheshareclassesarethevoting

rights.Dualshareclassesallowminorityshareholderstoretaincontrolofthecompany

eventhoughtheydonotownamajorityofthetotalsharesoutstanding.Often,dualshare

companieswerestartedbyafamily,takenpublic,butthefounderswanttoretaincontrol

ofthecompany.

16.Ifthecompanyusesstraightvoting,theboardofdirectorsiselectedoneatatime.You

willneedtoownone-halfoftheshares,plusoneshare,inordertoguaranteeenough

votestowintheelection.So,thenumberofsharesneededtoguaranteeelectionunder

straightvotingwillbe:

Sharesneeded=(600,000shares/2)+1

Sharesneeded=300,001

Andthetotalcosttoyouwillbethesharesneededtimesthepricepershare,or:

Totalcost=300,001x$39

Totalcost=$11,700,039

Ifthecompanyusescumulativevoting,theboardofdirectorsareallelectedatonce.You

willneed1/(N+1)percentofthestock(plusoneshare)toguaranteeelection,whereNis

thenumberofseatsupforelection.So,thepercentageofthecompany'sstockyouneed

is:

Percentofstockneeded=1/(N+1)

Percentofstockneeded=1/(7+1)

Percentofstockneeded=.1250or12.50%

So,thenumberofsharesyouneedtopurchaseis:

Numberofsharestopurchase=(600,000x.1250)+1

Numberofsharestopurchase=75,001

Andthetotalcosttoyouwillbethesharesneededtimesthepricepershare,or:

Totalcost=75,001x$39

Totalcost=$2,925,039

第16章P342：11、12、13、14、15

11-13seeexcel

14.a.UnderPlanI,theunleveredcompany,netincomeisthesameasEBITwithno

corporatetax.TheEPSunderthiscapitalizationwillbe:

EPS=$750,000/240,000shares

EPS=$3.13

UnderPlanII,theleveredcompany,EBITwillbereducedbytheinterestpayment.

Theinterestpaymentistheamountofdebttimestheinterestrate,so:

NI=$750,000-.10($3,100,000)

NI=$440,000

AndtheEPSwillbe:

EPS=$440,000/160,000shares

EPS=$2.75

PlanIhasthehigherEPSwhenEBITis$750,000.

h.UnderPlanI,thenetincomeis$1,500,000andtheEPSis:

EPS=$1,500,000/240,000shares

EPS=$6.25

UnderPlanII,thenetincomeis:

NI=$1,500,000-.10($3,l00,000)

NI=$1,190,000

AndtheEPSis:

EPS=$1,190,000/160,000shares

EPS=$7.44

PlanIIhasthehigherEPSwhenEBITis$1,500,000.

c.TofindthebreakevenEBITfortwodifferentcapitalstructures,wesimplysetthe

equationsforEPSequaltoeachotherandsolveforEBIT.ThebreakevenEBITis:

EBIT/240,000=[EBIT-.10($3,100,000)]/160,000

EBIT=$930,000

15.Wecanfindthepricepersharebydividingtheamountofdebtusedtorepurchaseshares

bythenumberofsharesrepurchased.Doingso,wefindthesharepriceis:

Samevalue:240000*Shareprice=160000*Shareprice+3100000

Shareprice=$3,100,000/(240,000-160,000)

Shareprice=$38.75pershare

Thevalueofthecompanyundertheall-equityplanis:

V=$38.75(240,000shares)=$9,300,000

Andthevalueofthecompanyundertheleveredplanis:

V=$38.75(160,000shares)+$3,100,000debt=$9,300,000

第17章P368：18

18.a.Ifthecompanydecidestoretireallofitsdebt,itwillbecomeanunleveredfirm.

Thevalueofanall-equityfirmisthepresentvalueoftheaftertaxcashflowto

equityholders,whichwillbe:

Vu=(EBIT)(l-fc)//?o

Vu=($1,300,000)(1-.35)/.20

Vu=$4,225,000

b.Sincetherearenobankruptcycosts,thevalueofthecompanyasaleveredfirmis:

VL=Vu+{1-[(1-fc)/(1-)])xB

VL=$4,225,000+{1-[(1-.35)/(1-.25)]}x$2,500,000

=$4,558,333.33

c.Thebankruptcycostswouldnotaffectthevalueoftheunleveredfirmsinceitcould

neverbeforcedintobankruptcy.So,thevalueoftheleveredfirmwithbankruptcy

wouldbe:

VL=Vu+{1-[(1-rc)/(l-rB)]}xfi-C(B)

VL=($4,225,000+{1-((1-.35)/(I-.25)]}x$2,500,000)-$400,000

VL=$4,158,333.33

Thecompanyshouldchoosetheall-equityplanwiththisbankruptcycost.

第18章P382：15

15.a.Ifthecompanywerefinancedentirelybyequity,thevalueofthefirmwouldbe

equaltothepresentvalueofitsunleveredafter-taxearnings,discountedatits

unleveredcostofcapital.First,weneedtofindthecompany'sunleveredcashflows,

whichare:

Sales$28,900,000

Variablecosts17,340,000

EBT$11,560,000

Tax4,624,000

Netincome$6,936,000

So,thevalueoftheunleveredcompanyis:

Vu=$6,936,000/.17

Vu=$40,800,000

h.AccordingtoModigliani-MillerPropositionIIwithcorporatetaxes,thevalueof

leveredequityis:

Rs=Ro+(B/S)(R()-RB)(1—tc)

Rs=.17+(,35)(.17-.09)(1-.40)

Rs=.1868or18.68%

Inaworldwithcorporatetaxes,afirm'sweightedaveragecostofcapitalequals:

RWACC=[B/(B+S)](l-tc)RB+[S/(B+S)]Rs

Soweneedthedebt-valueandequity-valueratiosforthecompany.Thedebt-equity

ratioforthecompanyis:

B/S=0.35

B=0.35S

Substitutingthisinthedebt-valueratio,weget:

B/V=.35S/(.35S+S)

B/V=.35/1.35

B/V=.26

Andtheequity-valueratioisoneminusthedebt-valueratio,or:

S/V=1-.26

S/V=.74

So,usingthecapitalstructureweights,thecompany'sWACCis:

RWACC=[B/(B+S)](l-tc)RB+[S/(B+S)]Rs

RWACC=.26(1-.40)(.09)+.74(.1868)

RWACC=.1524or15.24%

Wecanusetheweightedaveragecostofcapitaltodiscountthefirm'sunlevered

aftertaxearningstovaluethecompany.Doingso,wefind:

VL=$6,936,000/.1524

VL=$45,520,661.16

Nowwecanusethedebt-valueratioandequity-valueratiotofindthevalueofdebt

andequity,whichare:

B=Vt(Debt-value)

B=$45,520,661.16(.26)

B=$11,801,652.89

S=Vb(Equity-value)

S=$45,520,661.16(.74)

S=$33,719,008.26

d.Inordertovalueafirm'sequityusingtheflow-to-equityapproach,wecandiscount

thecashflow