ch009 corporate finance solutions

8/11/2019 Ch009 Corporate finance solutions

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Chapter 9Problems 1-38

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 thatthe "Analysis ToolPak" or "Solver Add-in" be installed in Excel.To install these:1) Click the Microsoft Office Button, and then click Excel Options

2) Click Add-Ins, and then in the Manage box, select Add-ins.3) Click Go.4) In the Add-Ins available box, select the Solver Add-in and Analysis T5) After you load the Solver Add-in, the Solver command is available in


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oolPak check boxes, and then click OK. the Analysis group on the Data tab.


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Chapter 9Question 1

Input area:

Dividend paid 2.15$Dividend growth rate 5%Required return 11%Requested year 0Requested year 3Requested year 15

Output area:

Price at Year 0 37.63$




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Chapter 9Question 2

Input area:

Dividend paid 3.20$Dividend growth rate 6%Stock price 63.50$

Output area:

Required return 11.04%


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Chapter 9Question 3

Input area:

Dividend paid 3.20$Dividend growth rate 6%Required return 63.50$

Output area:

Dividend yield 5.04%

Capital gains yield 6.00%


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Chapter 9Question 4

Input area:

Dividend paid 2.65$Dividend growth rate 4.75%Required return 11%

Output area:

Price 42.40$


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Chapter 9Question 5

Input area:

Dividend growth rate 6.4%Dividend yield 4.3%

Output area:



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Chapter 9Question 6

Input area:

Stock price 72.00$Required return 11.5%

Output area:

Next year's dividend 4.14$

Current dividend 3.91$


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Chapter 9Question 7

Input area:

Current dividend 9.00$Years until dividend ceases 12Required return 10.0%

Output area:

Share price 61.32$


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Chapter 9Question 8

Input area:

Current dividend 5.90$Share price 87.00

Output area:



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Chapter 9Question 9

Input area:

Earnings 34,000,000$ROE 16%Retention ratio 80%

Output area:

Growth rate 12.80%

Next year's earnings 38,352,000$


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Chapter 9Question 10

Input area:

EPS 1.75$Benchmark PE 18Benchmark PE 21

Output area:

Stock price at PE of 18 31.50$

Stock price at PE of 21 36.75$


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Input area:

Dividend paid 3.10$Dividend growth rate 6.0%

Initial required return 15%Second required return 13%Final required return 11%

Initial # of years 3Second # of years 3

Output area:

Present value at beginning of final period 93.23$Present value at beginning of second period 74.37$Present value at beginning of initial period 56.82$

Share price 56.82$


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Input area:

Future dividend 15.00$Dividend growth rate 5.50%Required return 13%Years until first dividend 10

Output area:

Share price at Year 9 200.00$

Share price 66.58$


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Input area:

Dividend 12.00$Dividend growth rate 3.00Required return 12%Years of growth 5

Output area:

Year Dividend1 15.00$2 18.003 21.004 24.005 27.006 -7 -8 -9 -

10 -

Share price 73.26$


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Input area:

Dividend one 10.00$Dividend two 7.00Dividend three 6.00Dividend four 2.75Dividend growth rate 5%Required return 13%

Output area:

Year 4 price 36.09$

Share price 42.31$


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Input area:

Dividend growth rate for 3 years 20%Dividend growth rate thereafter 5%Required return 12%Dividend 2.80$

Output area:

Price at end of supernormal growth 72.58$

Share price 61.32$


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Input area:

Initial dividend growth rate 30%Initial # of years 3Second growth rate 18%Second # of years 1Final growth rate 8%Required return 11%Share price 65.00$

Output area:

P4 93.33 X D0

Share price 74.43 X D0




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Input area:

Dividend paid 9.00$Dividend growth rate -4%Required return 11%

Output area:

Price 57.60$


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Input area:

Stock price 58.32$Required return 11.5%Dividend growth rate 5%

Output area:



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Input area:

Current dividend 8.00$Required return 5.6%Years until dividend begins 5

Output area:

Price 1 year before dividend 142.86$

Share price 114.88$


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Input area:

Dividend yield 1.90%Last price 26.18$Change in price (0.13)P/E ratio 23Commons shares outstanding 25,000,000

Output area:

Dividend 0.50$

Yesterday's closing price 26.31$

Earnings per share 1.138$

Net income 28,456,522$


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Input area:

Amount of investment 100,000$Dividend of 2.25$ in 1 yearsDividend of 2.40$ in 2 yearsSelling price of 65$ in 3 yearsTax rate 28%Required return 15%

Output area:

First dividend aftertax 1.62$Second dividend aftertax 1.73$

Stock price today 45.45$

Shares owned 2,200.03


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Input area:

Dividend next quarter 0.80$Quarters of constant dividend 12Growth rate 1.00%

Annual required return 10%

Output area:

Quarterly required return 2.50%

PV of fixed dividends 8.21$

PV of stock at end of no growth 53.87$

PV of future stock price today 40.05$

Stock price today 48.26$


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Input area:

Years of constant dividends 2Growth rate 4%Stock price 45.00$Required return 11%

Output area:

Constant dividend factor 1.7125

Future stock price factor 12.0584

Total constant factor 13.7709



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Input area:

Net income 18,000,000$Payout ratio 30%Shares of stock outstanding 2,000,000Stock price 93.00$ROE 13%

Output area:

Growth rate 9.10%

Current dividends per share 2.70$

Dividend next year 2.95$



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Input area:

Current earnings 950,000$Required return 12%

b) Additional earnings 100,000$c) Additional earnings 200,000$

Output area:

a) Value of company's stock 7,916,666.67$

P/E ratio 8.33

b) Value of company's stock 8,750,000.00$

P/E ratio 9.21

c) Value of company's stock 9,583,333.33$

P/E ratio 10.09


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Input area:

EPS 9.40$Investment one year from today 1.95$Increase in EPS 2 years from today 2.75$Increase in EPS 3 years from today 3.05$Required return 12%

Output area:

a) Current share price 78.33$

b) Value today of investment cost 1.74$Value today of Year 2 EPS increase 2.19$Value today of Year 3 EPS increase 2.17$

NPVGO 2.62$

New share price 80.96$

c) Share price in 4 years 78.33$


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Input area:

Revenues 7,500,000$Total costs 3,400,000$Shares outstanding 1,000,000Revenue growth rate 5%Cost growth rate 5%Discount rate 13%Initial outlay for new project 17,000,000$Outlay next year for new project 6,000,000$Perpetual profit level for new project 4,200,000$

Output area:

a) PV of revenues 98,437,500$PV of costs 44,625,000$PV of future dividends 53,812,500$

Current share price 53.81$

b) PV of next year's outlay 5,309,734.51$Total PV of cash outlays 22,309,734.51$

PV of earnings increase 28,590,878.15$

Increase in value of company 6,281,143.64$

Increase in share price 6.28$



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Input area:

Revenues 71,000,000$Initial outlay for new project 16,000,000$Outlay next year for new project 5,000,000$Perpetual profit level for new project 11,000,000$Shares outstanding 15,000,000Required return 12%

Output area:

a) Cash cow company value 591,666,667$

Cash cow stock price 39.44$

b) PV of next year's outlay 4,464,285.71$Total PV of cash outlays 20,464,285.71$

PV of earnings increase 81,845,238.10$

NPVGO 61,380,952.38$

c) NPVGO per share 4.09$



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Input Area:

EPS 2.35$Benchmark PE 21Earnings growth rate 7%

Output Area:

a. Current stock price 49.35$

b. Next year's EPS 2.51$

Target stock price next year 52.80$

c . Implicit return 7.00%


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Input area:

Sales 28,000,000$Costs 12,000,000$Debt 54,000,000$Cash 18,000,000$EV/EBITDA multiple 7.5Shares outstanding 950,000

Output area:

Sales 28,000,000$Costs 12,000,000EBITDA 16,000,000$

Enterprise value (EV) 120,000,000$

Equity value 48,000,000$

Share price 50.53$


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Input area:

Sales 145,000,000$Costs 81,000,000$Net investment 15,000,000$

Year 1 Year 2 Year 3 Year 4

Revenue, cost, and investment growth 14% 12% 10% 8%

Terminal growth rate 6%Shares outstanding 5,500,000Required return 13%Tax rate 40%

b. Terminal PE ratio 11

Output area:

Year 1 Year 2 Year 3 Year 4 Year 5

a. Sales 145,000,000$ 165,300,000$ 185,136,000$ 203,649,600$ 219,941,56$ Costs 81,000,000 92,340,000 103,420,800 113,762,880 122,863,9Pretax profit 64,000,000$ 72,960,000$ 81,715,200$ 89,886,720$ 97,077,65$ Taxes 25,600,000 29,184,000 32,686,080 35,954,688 38,831,06Net income 38,400,000$ 43,776,000$ 49,029,120$ 53,932,032$ 58,246,59$ Net investment 15,000,000 17,100,000 19,152,000 21,067,200 22,752,57Cash flow 23,400,000$ 26,676,000$ 29,877,120$ 32,864,832$ 35,494,0$

Year 7 cash flow 39,881,079$

Terminal value in Year 6 569,729,704$

Value of company today 393,449,950$

Price per share 71.54$

b. Year 6 teminal value 679,155,293$

Value of company today 446,009,087$

Price per share 81.09$


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Input area:

Required return 17%Most recent dividend 3.50$

Stock W dividend growth rate 8.5%Stock X dividend growth rate 0%Stock Y dividend growth rate -5%

Stock Z:

Initial growth rate 30%

Initial # of years 2Final growth rate 8%

Output area:

Dividend yields:

Stock W price 44.68$Dividend yield 8.5%


Stock X price 20.59$Dividend yield 17%

Capital gains yield 0%

Stock Y price 15.11$Dividend yield 22%

Capital gains yield -5%

Stock Z price at final rate 70.98$

Stock Z current price 60.06Dividend yield 7.58%


In all cases, the required return is 20%, but this return is distributed


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differently between current income and capital gains. High growthstocks have an appreciable capital gains component but arelatively small current income yield; conversely, mature, negative-growth stocks provide a high current income but also pricedepreciation over time.


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Input area:

Dividend paid 3.20$Dividend growth rate 5%Required return 11%

# of dividends per year 4

Output area:

a. Price 56.00$

b. Next four dividends 0.8400$Effective quarterly rate 2.64%Effective first dividend 3.50$

Share price 58.26$


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Input area:

Perpetual earnings/dividend 8.50$Year for investment opportunity 3Percentage of earnings invested 20%Percentage return on project 10%Required return 12%

Output area:

a) Stock price 70.83$

b) Growth rate of investment 2.00%Amount reinvested every year 1.70$Investment dollar return 0.170$Value of investment in year 2 (2.83)$

NPVGO value of today (2.26)$



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Chapter 9Questions 36, 37

Input area:

Required return 13.00%Most recent dividend 3.85$

Year 1 dividend growth rate 20%Year 2 dividend growth rate 15%Year 3 dividend growth rate 10%Year 4 dividend growth rate 5%

Output area:

Year 3 stock price 76.71$

Share price 65.46$

To solve problem #37, adjust the required return untilthe share price is equal to $78.43. Alternatively, you coulduse the "Solver" or "Goal Seek" functions.


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Microsoft Excel 14.0 Answer ReportWorksheet: [Jaffe 10th edition Chapter 09.xlsx]#36,37Report Created: 10/19/2011 12:08:14 PMResult: Solver found a solution. All Constraints and optimality conditions are satisfied.

Solver EngineEngine: GRG NonlinearSolution Time: 0.032 Seconds.Iterations: 2 Subproblems: 0

Solver OptionsMax Time 100 sec, Iterations 100, Precision 0.000001Convergence 0.0001, Population Size 100, Random Seed 0, Derivatives Forward, Require Bounds

Max Subproblems Unlimited, Max Integer Sols Unlimited, Integer Tolerance 5%, Solve Without Integer Const

Objective Cell (Value Of)

Cell Name Original Value Final Value

$D$21 Share price 65.46$ 78.43$

Variable Cells

Cell Name Original Value Final Value Integer

$D$7 Required return 13.00% 11.69% Contin

Constraints

Cell Name Cell Value Formula Status Slack

$D$21 Share price 78.43$ $D$21=78.43 Binding 0


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raints


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Input area:

Earnings per year 18,000,000$Growth rate in earnings 5%Year for new project 2Earnings percentage to fund project 30%Increase in earnings from project 6,500,000$Shares outstanding 7,500,000Required return 10%

Output area:

EPS/Dividends per share 2.52$Value of firm with learning curve 50.40$EPS in year of investment opportunity 2.6460$Initial required investment in year 2 0.79$Increase in EPS from project 0.87$Value of increased earnings in year 2 8.67$NPVGO in year 2 7.87$NPVGO today 6.51$

Stock price 56.91$

ch009 corporate finance solutions

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