1、Chapterr 2: AAccounnting Stateementss and Cash Flow2.10 AssetsCurrentt asseetsCash$ 4,0000Accountts recceivabble 8,000Total ccurrennt asssets$ 12,0000Fixed aassetssMachineery$ 34,0000Patentss 82,0000Total ffixed assetts$116,0000Total aassetss$128,0000Liabiliities and eequityyCurrentt liabbilitiiesAc

2、countts payyable$ 6,000Taxes ppayablle 2,000Total ccurrennt liaabilitties$ 8,000Long-teerm liiabiliitiesBonds ppayablle$7,000Stockhoolderss equiityCommon stockk ($1000 parr)$ 88,0000Capitall surpplus19,000Retaineed earrningss 6,000Total sstockhholderrs equuity$113,0000Total lliabillitiess and equitt

3、y$128,00002.11One yeaar agooTodayLong-teerm deebt$50,0000,000$50,0000,000Preferrred sttock30,000,00030,000,000Common stockk100,0000,000110,0000,000Retaineed earrningss 20,0000,0000 22,0000,0000Total$200,0000,0000$212,0000,00002.12Total CCash FFlow oof the Staancil CompaanyCash fllows ffrom tthe fiir

4、mCapitall spennding$(1,0000)Additioons too workking ccapitaal (4,0000)Total$(5,0000)Cash fllows tto invvestorrs of the ffirmShort-tterm ddebt$(6,0000)Long-teerm deebt(20,0000)Equity (Diviidend - Finnancinng) 21,0000Total$(5,0000)Note: Thiss tablle isnnt thhe Staatemennt of Cash Flowss, whiich iss on

5、lyy coveered iin Apppendixx 2B, sincee the latteer hass the changge in cash (on tthe baalancee sheeet) ass a fiinal eentry.2.13a.The cchangees in net wworkinng cappital can bbe commputedd fromm:Sourcess of nnet woorkingg capiitalNet inccome$100Depreciiationn50Increasses inn longg-termm debtt 75Total

6、 ssourcees$225Uses off net workiing caapitallDividennds$50Increasses inn fixeed asssets* 150Total uuses$200Additioons too net workiing caapitall$25*Includdes $550 of depreeciatiion. b.Cash fllow frrom thhe firrmOperatiing caash fllow$150Capitall spennding(150)Additioons too net workiing caapitall (2

7、5)Total$(25)Cash fllow too the invesstorsDebt$(75)Equity 50Total$(25)Chapterr 3: Finanncial Markeets annd Nett Pressent VValue: Firrst Prrincipples oof Finnance (Advaanced)3.14 $120,000 - ($1550,0000 - $1100,0000) (11.1) = $65,0003.15 $40,0000 + ($50,000 - $20,000) (1.122) = $73,60003.16a.($7 mmilli

8、oon + $3 milllion) (1.110) = $11.00 milllionb. i. Thhey coould sspend $10 mmillioon by borroowing $5 miillionn todaay.ii. TThey wwill hhave tto speend $55.5 miillionn = $11 miillionn - ($5 milllion x 1.11) att t=1.Chapterr 4: NNet Prresentt Valuue4.12a.$1,0000 1.0510 = $1,6288.89b.$11,000 1.07710 =

9、$1,9677.15c.$11,000 1.05520 = $2,6533.30d.Innteresst commpoundds on the iintereest allreadyy earnned. Thereefore, the interrest eearnedd in paart c, $1,6653.300, is more than doublle thee amouunt eaarned in paart a, $623Siince tthis bbond hhas noo inteerim ccouponn paymments, its preseent v

10、aalue iis simmply tthe prresentt valuue of the $1,0000 thatt willl be rreceivved inn 25 yyears. Notte: Ass willl be ddiscusssed iin thee nextt chappter, the ppresennt vallue off the paymeents aassociiated with a bonnd is the pprice of thhat boond.PV = $1,0000 /11.125 = $92.3004.14PVV = $11,500,000 /

11、 1.08827 = $187,7780.2334.15a.At a discoount rrate oof zerro, thhe futture vvalue and ppresennt vallue arre alwways tthe saame. Rememmber, FV = PV (11 + r) t. IIf r = 0, tthen tthe foormulaa reduuces tto FV = PV. Thereefore, the valuees of the ooptionns aree $10,000 aand $220,0000, resspectiively. Y

12、ouu shoulld chooose tthe seecond optioon.b.Opttion oone:$10,0000 / 1.1 = $9,0090.911Optiion twwo:$20,0000 / 1.15 = $112,4188.43Chooose thhe seccond ooptionn.c.Opttion oone:$10,0000 / 1.2 = $8,3333.333Optiion twwo:$20,0000 / 1.25 = $88,037.55Chooose thhe firrst opption.d.You are iindiffferentt at tth

13、e raate thhat eqquatess the PVs oof thee two alterrnativves. You kknow tthat rrate mmust ffall bbetweeen 10% and 20% bbecausse thee optiion yoou wouuld chhoose diffeers att thesse rattes. Let rr be tthe diiscounnt ratte thaat makkes yoou inddifferrent bbetweeen thee optiions.$10,000 / (1 + r) = $20,

14、000 / (1 + r)5(1 + r)4 = $220,0000 / $110,0000 = 21 + r = 11.189221r = 0.189921 = 18.9221%4.16Thhe $1,000 tthat yyou pllace iin thee accoount aat thee end of thhe firrst yeear wiill eaarn innteresst forr six yearss. Thee $1,0000 thhat yoou plaace inn the accouunt att the end oof thee secoond yeear w

15、iill eaarn innteresst forr fivee yearrs, ettc. TThus, the aaccounnt willl havve a bbalancce of$1,0000 (11.12)66 + $11,000 (1.122)5 + $11,000 (1.122)4 + $11,000 (1.122)3= $66,714.614.17PVV = $55,000,000 / 1.12210 = $1,6099,866.184.18a.$1.0000 (1.08)3 = $11,259.71b.$1,000 1 + (0.08 / 2)2 3 = $1,0000 (

16、1.04)6 = $11,265.32c.$1,000 1 + (0.08 / 12)12 3 = $11,000 (1.000667)336 = $1,2700.24d.$1,000 ee0.08 3 = $1,2771.25e.The futurre vallue inncreasses beecausee of tthe coompounnding. Thee accoount iis earrninginterrest oon intterestt. Esssentiially, the interrest iis addded too the accouunt baalancee a

17、t tthe end oof eveery coompounnding periood. DDuringg the next periood, thhe acccount earnss interrest oon thee new balannce. When the ccompouundingg periiod shhortenns, thhe ballance that earnss inteerest is riising fasteer.4.19Thhe priice off the consool bonnd is the ppresennt vallue off the coupo

18、on payymentss. Appply tthe peerpetuuity fformulla to find the ppresennt vallue. PV = $120 / 0.115 = $8004.20a.$1,0000 / 00.1 = $10,0000b.$5000 / 0.1 = $5,0000 is tthe vaalue oone yeear frrom noow of the pperpettual sstreamm. Thhus, tthe vaalue oof thee perppetuitty is $5,0000 / 11.1 = $4,5445.45.c.$

19、2,420 / 0.1 = $244,200 is thhe vallue twwo yeaars frrom noow of the pperpettual sstreamm. Thus, the valuee of tthe peerpetuuity iis $244,200 / 1.112 = $220,0000.4.21Appply tthe NPPV tecchniquue. SSince the iinflowws aree an aannuitty youu can use tthe prresentt valuue of an annnuityy facttor.NPV= -$

20、66,200 + $1,200 = -$6,2000 + $1,2000 (5.33349)= $201.888Yes, yyou shhould buy tthe assset.4.22Usse an annuiity faactor to coomputee the valuee two yearss fromm todaay of the ttwentyy paymments. Remmemberr, thee annuuity fformulla givves yoou thee valuue of the sstreamm one year beforre thee firsst p

21、ayyment. Hennce, tthe annnuityy facttor wiill giive yoou thee valuue at the eend off yearr two of thhe strream oof payymentss. Value at thhe endd of yyear ttwo= $2,000 = $2,000 (9.81881)= $199,636.20The prresentt valuue is simplly thaat amoount ddiscouunted back two yyears.PV = $19,6336.20 / 1.0082

22、= $116,8344.884.23Thhe eassiest way tto do this probllem iss to uuse thhe annnuity factoor. TThe annnuityy facttor muust bee equaal to $12,8800 / $2,0000 = 66.4; rremembber PVV =C AATr. Thhe annnuity factoors arre in the aappenddix too the text. To use tthe faactor tablee to ssolve this probllem, ss

23、can aacrosss the row llabeleed 10 yearss untiil youu findd 6.4. It is cllose tto thee facttor foor 9%, 6.41177. Thus, the rate you wwill rreceivve on this note is sllightlly morre thaan 9%.You caan finnd a mmore pprecisse ansswer bby intterpollatingg betwween nnine aand teen perrcent. 10% 6.1446 a r

24、 b cc 6.44 dd 9% 6.44177 By intterpollatingg, youu are presuuming that the rratio of a to b is eqqual tto thee ratiio of c to d.(9 - r ) / (9 - 10) = (66.41777 - 6.4 ) / (6.44177 - 6.14446)r = 99.06488%The exaact vaalue ccould be obbtaineed by solviing thhe annnuity formuula foor thee inteerest rate

25、. Sopphistiicatedd calcculatoors caan commpute the rrate ddirecttly ass 9.06626%.Note: A sttandarrd finnanciaal callculattors TVM kkeys ccan soolve ffor thhis raate. With annuiity fllows, the IIRR keey on “advaanced” finanncial calcuulatorrs is unneccessarry.4.24a.The aannuitty amoount ccan bee comp

26、puted by fiirst ccalcullatingg the PV off the $25,0000 whichh you need in fiive yeears. Thatt amouunt iss $17,824.665 = $25,0000 / 1.0755. Next compuute thhe annnuity whichh has the ssame ppresennt vallue.$17,824.665= C $17,824.665= C (4.10002) C= $4,347.226Thuss, puttting $4,3447.26 into the 77% ac

27、ccount each year will proviide $225,0000 fivee yearss fromm todaay.b.Thee lumpp sum paymeent muust bee the preseent vaalue oof thee $25,000, i.e., $25,000 / 1.075 = $117,8244.65The formuula foor futture vvalue of anny annnuity can bbe useed to solvee the probllem (ssee footnnote 111 of the ttext).4.

28、25Opption one: Thiss cashh floww is aan annnuity due. To vvalue it, yyou muust usse thee afteer-taxx amouunts. The afterr-tax paymeent iss $1600,000 (1 - 0.28) = $1115,2000. VValue all eexceptt the firstt paymment uusing the sstandaard annnuityy formmula, then add bback tthe fiirst ppaymennt of $115

29、,200 tto obttain tthe vaalue oof thiis opttion.Valuue= $1115,2000 + $1115,2000 = $115,2200 + $115,200 (9.42669)= $1,2011,178.88Optionn two: Thiis opttion iis vallued ssimilaarly. You are aable tto havve $4446,0000 now; thiis is alreaady onn an aafter-tax bbasis. Youu willl receeive aan annnuity of $

30、1101,0555 forr eachh of tthe neext thhirty yearss. Thhose ppaymennts arre taxxable when you rreceivve theem, soo yourr afteer-taxx paymment iis $722,759.60 = $1011,055 (1 - 0.28).Valuue= $4446,0000 + $772,7599.60 = $446,0000 + $72,7759.600 (9.44269)= $1,1311,897.47Since optioon onee has a higgher PP

31、V, yoou shoould cchoosee it.4.26Leet r bbe thee ratee of iintereest yoou musst earrn.$10,0000(1 + r)112= $800,000(1 + r)12 = 8r = 0.189921 = 18.9221%4.27Fiirst ccomputte thee pressent vvalue of alll thee paymments you mmust mmake ffor yoour chhildreens eeducattion. The valuee as oof onee yearr befoo

32、re maatricuulatioon of one cchilds eduucatioon is$21,000 = $211,000 (2.85550) = $59,955.This iis thee valuue of the eelder childds edducatiion foourteeen yeaars frrom noow. IIt is the vvalue of thhe youunger childds edducatiion siixteenn yearrs froom todday. The ppresennt vallue off thesse is PV= $5

33、99,955 / 1.11514 + $59,9555 / 11.15166 = $144,880.44You waant too makee fiftteen eequal paymeents iinto aan acccount that yieldds 15% so tthat tthe prresentt valuue of the eequal paymeents iis $144,880.44. Paymment = $14,880.444 / = $144,880.44 / 5.84774 = $2,5444.804.28Thhis prroblemm appllies tthe

34、 grrowingg annuuity fformulla. TThe fiirst ppaymennt is $50,000(11.04)22(0.022) = $1,0811.60.PV= $1,0081.600 1 / (0.008 - 00.04) - 1 / (0.08 - 0.04)1.004 / 11.08440 = $211,064.28This iis thee pressent vvalue of thhe payymentss, so the vvalue fortyy yearrs froom todday iss $21,064.228 (1.0840) = $457

35、,611.4464.29Usse thee disccount factoors too disccount the iindiviidual cash flowss. Thhen coomputee the NPV oof thee projject. Notiice thhat thhe fouur $1,000 ccash fflows form an annnuityy. Yoou cann stilll usee the factoor tabbles tto commpute theirr PV. Esseentiallly, tthey fform ccash fflows th

36、at are aa six year annuiity leess a two yyear aannuitty. TThus, the aapproppriatee annuuity ffactorr to uuse wiith thhem iss 2.61198 (= 4.35553 - 1.73555).YearCash FllowFactorPV1 $70000.9091$636.3772 99000.8264743.7631,00041,0002.61982,619.88051,00061,00071,2500.5132641.5081,3750.4665641.44Total$5,2

37、82.87NPV= -$5,000 + $5,2282.877= $2282.877Purchhase tthe maachinee.Chapterr 5: HHow too Valuue Bonnds annd Stoocks5.9Thee amouunt off the semi-annuaal intterestt paymment iis $400 (=$11,000 0.088 / 2). Thhere aare a totall of 440 perriods; i.e., twoo halff yearrs in each of thhe tweenty yyears in th

38、he terrm to maturrity. The aannuitty facctor ttabless can be ussed too pricce theese boonds. The approopriatte disscountt ratee to use iis thee semii-annuual raate. That rate is siimply the aannuall ratee diviided bby twoo. Thhus, ffor part b thee ratee to bbe useed is 5% annd forr partt c iss it 33

39、%. PVV=C+F/(1+r)40a. $440 (199.79288) + $1,0000 / 1.0440 = $1,0000Noticce thaat wheeneverr the coupoon ratte andd the markeet ratte aree the same, the bond is priceed at par. b. $440 (177.15911) + $1,0000 / 1.0540 = $828.441Noticce thaat wheeneverr the coupoon ratte is beloww the markeet ratte, thhe

40、 bonnd is priceed beloww par.c. $440 (233.11488) + $1,0000 / 1.0340 = $1,2311.15Noticce thaat wheeneverr the coupoon ratte is abovee the markeet ratte, thhe bonnd is priceed abovee par.5.10a.The ssemi-aannuall inteerest rate is $660 / $1,0000 = 0.06. Thus, the effecctive annuaal ratte is 1.0622 - 1

41、= 0.11236 = 12.336%.b.Priice = $30 + $1,000 / 1.06612 = $7748.488c.Priice = $30 + $1,000 / 1.04412= $9906.155Note: In paarts bb and c we are iimpliccitly assumming tthat tthe yiield ccurve is fllat. That is, tthe yiield iin yeaar 5 aappliees forr yearr 6 ass welll.5.11Prrice = $2 (0.72) / 1.15 + $4

42、(00.72) / 1.1152 + $550 / 11.153= $336.31The nuumber of shhares you oown = $100,000 / $36.31 = 2,7544 sharres5.12PPrice = $1.15 (11.18) / 1.112 + $1.15 (1.1882) / 11.122 + $11.152 (1.1182) / 11.123 + $1.152 (1.1182) (1.066) / (0.12 - 0.006) / 1.1223 = $226.955.13IInsertt befoore laast seentencce of

43、questtion: Assuume thhat diividennds arre a ffixed propoortionn of eearninngs.Dividennd onee yearr fromm now = $5 (1 - 0.10) = $44.50Pricee = $55 + $44.50 / 0.114 - (-0.100)= $223.75Sincee the curreent $55 diviidend has nnot yeet beeen paiid, itt is sstill incluuded iin thee stocck priice.Chapterr 6

44、: SSome AAlternnativee Inveestmennt Rulles6.10a.Paybaack peeriod of Prrojectt A = 1 + ($7,5000 - $4,0000) / $3,5000 = 2 yearssPaybackk periiod off Projject BB = 2 + ($55,000 - $2,500 -$1,2000) / $3,0000 = 22.43 yyearsProjeect A shoulld be choseen.b.NPVVA = -$7,5000 + $44,000 / 1.115 + $3,5000 / 1.15

45、2 + $11,500 / 1.1153 = -$388.996NPVB = -$55,000 + $2,500 / 1.155 + $11,200 / 1.1152 + $33,000 / 1.1153 = $553.83Projeect B shoulld be choseen.6.11a.Averaage Innvestmment:($16,000 + $12,000 + $8,0000 + $4,0000 + 00) / 55 = $88,000Averaage acccountting rreturnn:$4,5000 / $8,0000 = 0.5625 = 56.25%b.1.A

46、AR dooes noot connsiderr the timinng of the ccash fflows, hencce it does not consiider tthe tiime vaalue oof monney.2.AAAR usees an arbittrary firm standdard aas thee deciision rule.3.AAAR usees acccountiing daata raather than net ccash fflows.6.12aAveragge Invvestmeent = (80000 + 40000 + 1500 + 0)/

47、4 = 3375.00Averagge Nett Incoome = 2000(1-0.775) = 1500= AARR = 15500/33375=444.44% 6.13 a.Solvee x byy triaal andd erroor:-$8,0000 + $4,0000 / (1 + xx) + $3000 / (1 + x)22 + $22,000 / (1 + x)33 = 0 x = 66.93%b.No, sincce thee IRR (6.933%) iss lesss thann the discoount rrate oof 8%.Alterrnativvely,

48、the NNPV a disscountt ratee of 00.08 = -$134a.Solvee r inn the equattion:$5,0000 - $2,5000 / (11 + r) - $22,000 / (1 + r)22 - $11,000 / (1 + r)33 - $1,000 / (1 + r)4 = 0By trrial aand errror,IRR = r = 13.999%b.Sinnce thhis prroblemm is tthe caase off finaancingg, acccept tthe prrojectt if t

49、the IRRR is less than the rrequirred raate off retuurn.IRR = 13.999% 10%Rejecct thee offeer.c.IRRR = 133.99% rr = 0.1306. This prroducees a ttwo yeear hooldingg periiod reeturn of (11.13066)2 1 = 0.22782. Unfoortunaately, thiss bookk doess not teachh the dollaar weiightedd methhod. In ordeer to salv

50、aage thhis quuestioon in a finnanciaally mmeaninngful way, you wwould need the vvalue of thhe stoock att the end oof onee yearr. Thhen ann illuustrattion oof thee corrrect uuse off the time-weighhted rreturnn woulld be approopriatte. AA compplicatting ffactorr is tthat, whilee Secttion 99.2 illlustr

51、rates the hholdinng perriod rreturnn usinng thee geommetricc retuurn foor hisstoriccal daata, tthe arrithmeetic returrn is more approopriatte forr expeected futurre retturns.9.10E(R)= T-BBill rrate + Averrage EExcesss Retuurn = 6.22% + (13.0% -3.88%) = 15.4%9.11a.Commoon Treassury ReallizedStoocks B

52、illssRisk Premiium-7332.4%11.2%21.2%-6-4.99 14.7 -119.6-5221.4 10.5 100.9-4222.5 8.88 13.7-3 6.3 9.9 -33.6-2332.2 7.7 24.5Lastt18.5 6.2 12.3b.Thee averrage rrisk ppremiuum is 8.49%.c. Yees, itt is ppossibble foor thee obseerved risk premiium too be nnegatiive. TThis ccan haappen in anny sinngle yyea

53、r. The aaveragge rissk preemium over many yearss shouuld bee posiitive.9.12a. Economiic StaateProb. (P)Return if State OOccurssPReturnnRecessiion0.20.050.010Moderatte Groowth0.60.080.048Rapid EExpanssion30Expecteed Retturn =0.088b.Return if Sttate OOccurssP0.05-0.0380.00144440.000288880.08

54、-0.0080.00006640.000033840.150.0620.00384440.00076688Variancce =0.00109960Standdard ddeviattion = 9.13a. Economiic StaateProb.(PP)Return if Sttate ooccurssPReturnnRecessiion0.30.020.006Moderatte Groowth0.40.050.020Rapid EExpanssion30Expecteed Retturn =0.056b.Return if Sttate ooccurssP0.02-

55、0.0360.00129960.000388880.05-0.0060.00003360.000011440.10 0.0440.00193360.00058808Variancce =0.00098840Standaard deeviatiion = = 0.003137 = 3.1137% 9.14a. b. Chapterr 10: Retuurn annd Rissk: TThe Caapitall-Asseet-Priicing Modell (CAPPM)10.17a. = 0.11 ( 44.5%) + 0.22 (4.44%) + 0.5 (12.0%) + 00.2 (220

56、.7%)= 100.57%b.2= 0.11 (0.045 0.10057)2 + 0.2 (0.044 0.10057)2 + 0.5 (0.12 0.10557)2 + 0.22 (0.2207 0.10557)2= 0.0052= (00.00522)1/2 = 0.0722 = 7.20%10.18HHoldinngs off Atlaas stoock = 120 $50 = $6,0000Holdinngs off Babccock sstock = 1500 $200 = $33,000Weightt of AAtlas stockk = $66,000 / $9,000 = 2

57、 / 3Weightt of BBabcocck stoock = $3,0000 / $9,0000 = 1 / 310.19aa.= 0.33 (0.112) + 0.7 (0.18) = 0.162 = 16.22%b.P 22= 0.332 (0.009)2 + 0.72 (0.225)2 + 2 (0.3) (0.77) (0.09) (0.25) (0.22)= 0.0332444P= (0.0333244)11/2 = 0.18223 = 118.23%10.20aa.StateReturn on AReturn on BProbabiility115%35%0.4 0.5 =

58、00.2215%-5%0.4 0.5 = 00.2310%35%0.6 0.5 = 00.3410%-5%0.6 0.5 = 00.3b.= 0.2 0.5 (0.15) + 0.5 (0.35) + 0.220.5 (0.155) + 00.5 (-0.05) + 0.3 0.5 (0.100) + 00.5 (00.35) + 0.3 0.5 (0.10) + 0.5 (-0.005)= 0.135= 133.5%10.21NNote: The ssolutiion too thiss probblem rrequirres caalculuus.Speciificallly, tthe

59、soolutioon is foundd by mminimiizing a funnctionn subjject tto a cconstrraint. Calcuulus aabilitty is not nnecesssary tto undderstaand thhe priinciplles beehind a minnimum variaance portffolio.Min XA2 A2 + XB2 B2 + 22 XA XB Cov(RA , RB)subjject tto XA + XB = 1Let XAA = 1 - XB. Thhen,Min (1 - XB)2 A2

60、 + XB2 B2+ 2(11 - XBB) XB Cov (RA, RB)Take aa deriivativve witth resspect to XBB.d / dXB = (22 XB - 2) A2 + 22 XB B2 + 2 Cov(RRA, RB) - 44 XB Cov(RRA, RB)Set thhe derrivatiive eqqual tto zerro, caancel the ccommonn 2 annd sollve foor XB.XB A22 - A2 + XXB B2 + Coov(RA, RB) - 22 XB Cov(RRA, RB) = 00XB