# FIN 669 Problems Assignment

Problem 27-4 Quarterly working capital levels for your firm for the next year are included in the followingtable. What are the permanent working capital needs of your company? What are the temponeeds?Quarter(000)CashAccounts receivableInventoryAccounts payable 1 2$100200200100 3$100100500100 $100100900100 Quarter(000)Net working capitalPermanent working capitalTemporary working capital 1 2 3 Requirements1. In cell D14, by using cell references, calculate the net working capital for year 1 (1 pCopy cell D14, and paste it onto cells E14:G14 (1 pt.). 2. To calculate the permanent working capital, you need to find the minimum net workincapital by using the function MIN. In cell D15, by using the function MIN and cellreferences, calculate the permanent working capital (1 pt.). 3. In cell D16, by using relative and absolute cell references, calculate the temporaryworking capital needs for year 1 (1 pt.). Copy cell D16, and paste it onto cells E16:G(1 pt.). included in the followingany? What are the temporary 4$10060050100 4 ng capital for year 1 (1 pt.). the minimum net workingfunction MIN and cell lculate the temporarypaste it onto cells E16:G16 Problem 27-6 The Hand-to-Mouth Company needs a $10,000 loan for the next 30 days. It is trying to dAlternative A: Forgo the discount on its trade credit agreement that offers terms oAlternative B: Borrow the money from Bank A, which has offered to lend the firm(no-interest) compensating balance of 5% of the face value of the lHand-to-Mouth must borrow even more than the $10,000.Alternative C: Borrow the money from Bank B, which has offered to lend the firmorigination fee.Which alternative is the cheapest source of financing for Hand-to-Mouth?PrincipalTerm of loan $10,00030 Alternative A: Forego trade discountCredit Terms2.00%Additional daysInterest rate per periodAnnual rateAlternative B: Borrow from Bank AAPR12.00%Compensating balance5.00%Fee$100.00Total borrowedInterest paidInterest & fee paidPeriodic rateAnnual rate Alternative C: Borrow from Bank BAPR15.00%Compensating balance0.00%Origination fee1.00%Fee Total borrowedInterest paidInterest & fee paidPeriodic rateAnnual rateCheapest loan costThis is: Requirements1. In cell D16, by using cell references, calculate the additional days of credit (1 pt.).2. In cell D17, by using cell references, calculate the implicit interest rate charged for the ad3. In cell D18, by using cell references, calculate the annual cost of payables (1 pt.).4. In cell D25, by using cell references, calculate the total amount to borrow (1 pt.).5. In cell D26, by using cell references, calculate the interest paid (1 pt.).6. In cell D27, by using cell references, calculate the interest & fee paid (1 pt.).7. In cell D28, by using cell references, calculate the periodic rate by dividing the interest &8. In cell D29, by using cell references, calculate the annual rate (1 pt.).9. In cell D37, by using cell references, calculate the fee to be paid (1 pt.).10. In cell D38, by using cell references, calculate the total amount to borrow (1 pt.).11. In cell D39, by using cell references, calculate the interest paid (1 pt.).12. In cell D40, by using cell references, calculate the interest & fee paid (1 pt.).13. In cell D41, by using cell references, calculate the periodic rate (1 pt.).14. In cell D42, by using cell references, calculate the annual rate (1 pt.).15. You will find the cheapest loan cost by using the function MIN. In cell D44, by using thethe cheapest loan cost (1 pt.).16. In cell D45, identify the cheapest alternative by typing Alternative A, Alternative B or he next 30 days. It is trying to decide which of three alternatives to use:it agreement that offers terms of 2/10, net 30. hich has offered to lend the firm $10,000 for 30 days at an APR of 12%. The bank will require aof 5% of the face value of the loan and will charge a $100 loan origination fee, which meansmore than the $10,000.hich has offered to lend the firm $10,000 for 30 days at an APR of 15%. The loan has a 1% loan Hand-to-Mouth? 10 net 30 onal days of credit (1 pt.).it interest rate charged for the additional days of credit (1 pt.).cost of payables (1 pt.).mount to borrow (1 pt.).t paid (1 pt.).t & fee paid (1 pt.).ic rate by dividing the interest & fee paid (1 pt.).rate (1 pt.).be paid (1 pt.).mount to borrow (1 pt.).t paid (1 pt.).t & fee paid (1 pt.).ic rate (1 pt.).rate (1 pt.).n MIN. In cell D44, by using the function MIN and cell references, find lternative A, Alternative B or Alternative C (1 pt.). k will require awhich means n has a 1% loan Problem 28-9 Your company has earnings per share of $4. It has 1 million shares outstanding, each of wprice of $40. You are thinking of buying TargetCo, which has earnings per share of $2, 1shares outstanding, and a price per share of $25. You will pay for TargetCo by issuing neThere are no expected synergies from the transaction.a. If you pay no premium to buy TargetCo, what will your earnings per share be after b. If you pay a 20% premium to buy TargetCo, what will your earnings per share bemerger?c. What explains the change in earnings per share in part (a)? Are your shareholdersworse off?d.What will your price-earnings ratio be after the merger (if you pay no premium)? Hthis compare to your P/E ratio before the merger? How does this compare to Targemerger P/E ratio?Your Company:Earnings per shareShares outstandingPrice per share $4.001,000,000$40.00 Target:Earnings per shareShares outstandingPrice per share $2.001,000,000$25.00 Total consolidated earningsa. If you pay no premium to buy TargetCo, what will your earnings per share be afterValue of target companyShares of acquirer issuedTotal shares outstandingNew EPSb. If you pay a 20% premium to buy TargetCo, what will your earnings per share bemerger? Premium 20% Purchase priceValue of target companyShares of acquirer issuedTotal shares outstandingNew EPSc. What explains the change in earnings per share in part (a)? Are your shareholdersworse off?Focusing on EPS alone cannot tell you whether they’re better or worse off.d. What will your price-earnings ratio be after the merger (if you pay no premium)? Hthis compare to your P/E ratio before the merger? How does this compare to Targemerger P/E ratio?Acquirer’s P/E ratio beforeAcquirer’s P/E ratio afterTarget’s P/E ratio before RequirementsTo calculate the acquirer’s new EPS, you need to calculate the total consolidated earning1. of shares outstanding after the merger. Use cell references in all of the following requir In cell D20, calculate the total consolidated earnings by adding both companies’ earnings2. In cell D24, calculate the total value of the target company. (1 point.)3. In cell D25, calculate the shares that the acquirer needs to issue. (1 point.)4. In cell D26, calculate the total number of shares outstanding after the merger. (1 point.)In cell D27, by using cell references, calculate the new EPS. by dividing the total consoli5. total number of shares outstanding after the merger. (1 point.) 6. In cell D33, calculate the new price per share of the target company if a premium is paid.7. In cell D34, calculate the new total value of the target company. (1 point.)8. In cell D35, calculate the shares that the acquirer needs to issue. (1 point.)9. In cell D36, calculate the total number of shares outstanding after the merger. (1 point.)In cell D37, by using cell references, calculate the new EPS by dividing the total consolid10. total number of shares outstanding after the merger. (1 point.) 11. In cell D45, by using cell references, calculate the acquirer’s P/E ratio before the merger.12. In cell D46, calculate the acquirer’s P/E ratio after the merger. (1 point.)13. In cell D47, calculate the target company’s P/E ratio before the merger. (1 point.) outstanding, each of which has angs per share of $2, 1 millionargetCo by issuing new shares. ings per share be after the merger? earnings per share be after the Are your shareholders any better or ou pay no premium)? How doesthis compare to TargetCo’s pre- ings per share be after the merger? earnings per share be after the Are your shar

eholders any better or etter or worse off. ou pay no premium)? How doesthis compare to TargetCo’s pre- consolidated earnings and the total numberthe following requirements. h companies’ earnings. (1 point.) he merger. (1 point.)iding the total consolidated earnings by the y if a premium is paid. (1 point.) he merger. (1 point.)ding the total consolidated earnings by the tio before the merger. (1 point.) ger. (1 point.) Problem 30-6 Your utility company will need to buy 100,000 barrels of oil in ten days time, and it is woyou go long 100 oil futures contracts, each for 1000 barrels of oil, at the current futures pfutures prices change each day as follows:63 62 $ Future Price ($/bbl)61 $60.75 $60.5060 $60.00$59.50 $59.75 $59.50 59 58 $58.00 $57.75 $57.5057 0 1 2 3 4 5 6 7 8 9 Day a. What is the mark-to-market profit or loss (in dollars) that you will have on each dab. What is your total profit or loss after ten days? Have you been protected against ac. What is the largest cumulative loss you will experience over the ten-day period? Inproblem?Position (long contracts)Contract (barrels)Current price 1001,000$60.00 a. What is the mark-to-market profit or loss (in dollars) that you will have on each da Day0123456 Price($)60.0059.5057.5057.7558.0059.5060.50 Gain/Loss($) 78910 60.7559.7561.7562.50 b. What is your total profit or loss after ten days? Have you been protected against aTotalProtected? c. What is the largest cumulative loss you will experience over the ten-day period? Inproblem? Day012345678910 Gain/Loss($) Cumulative($) Largest cumulative lossThis loss would be a problem if you had to liquidate that day.” Requirements1. In cell F31, by using cell references, calculate the profit or loss for day 1.Hint: Use absolute cell reference on cells E22 and E23 in order to get cell F31 ready to bCopy and paste cell F31 onto cells F32:F40. (2 points.)2. In cell E44, calculate the total profit or loss by using the function SUM. (1 point.)To see whether you have been protected against a rise in oil prices, you need to assess wh3. by using the function IF. In cell E45, input the function IF to compare whether the total profit (or loss) is greater tgreater than zero, otherwise show NO. (1 point.)4. To calculate the largest daily cumulative loss, you need to calculate the daily cumulativeIn cell F52, calculate the cumulative gain or loss for day 1 by making a cell reference toE52. (1 point.) In cell F53, calculate the cumulative gain or loss for day 2 by adding the profit or loss fo5. loss for day 1. Copy and paste cell F53 onto cells F54:F61. (2 points.)6. To find the largest daily cumulative loss, in cell E63, use the function MIN. (1 point.) en days time, and it is worried about fuel costs. Supposeil, at the current futures price of $60 per barrel. Suppose $62.50$61.75 $60.75 $60.50 $59.75 6 7 8 9 10 you will have on each date?been protected against a rise in oil prices? ver the ten-day period? In what case might this be a you will have on each date? been protected against a rise in oil prices? ver the ten-day period? In what case might this be a for day 1.to get cell F31 ready to be copied onto cell F32 to F40. n SUM. (1 point.)es, you need to assess whether you experienced a total profit or loss profit (or loss) is greater than 0, and show YES if total profit is late the daily cumulative gain or loss.aking a cell reference to the profit or loss for day 1, cell dding the profit or loss for day 2, and the cumulative gain orpoints.) nction MIN. (1 point.) Problem 31-8 Manzetti Foods, a U.S. food processing and distribution company, is considering an invein the euro area. You are in Manzetti’s corporate finance department and are responsibledeciding whether to undertake the project. The expected free cash flows, in euros, areuncorrelated to the spot exchange rate and are shown here: Year01234 Free Cash Flow(EUR million)-2512141515 The new project has similar dollar risk to Manzetti’s other projects. The company knowsoverall dollar WACC is 9.5%, so it feels comfortable using this WACC for the project. Thfree interest rate on dollars is 4.5% and the risk-free interest rate on euros is 7%.a. Manzetti is willing to assume that capital markets in the United States and the euroare internationally integrated. What is the company’s euro WACC?b. What is the present value of the project in euros?Risk-free rate on USDRisk-free rate on EUR Year01234US WACC 4.50%7.00% Free Cash Flow(EUR million)(25.00)12.0014.0015.0015.009.50% a. Manzetti is willing to assume that capital markets in the United States and the euroare internationally integrated. What is the company’s euro WACC? Euro WACCb. What is the present value of the project in euros?Project value (million EUR)Undertake project? Requirements1. In cell E33, calculate the euro WACC. To calculate the euro WACC use the following foWACC_EUR = (1 + WACC_USD) * (1 + r_EUR)/(1 + r_USD) – 1. (1 point.) 2. To calculate the project value, you will use the function NPV. In cell E37, input the func3. To decide on the attractiveness of the project, you need to assess the value of the projectIn cell E38, if the project value, cell E37, is larger than 0; show Yes; otherwise display N any, is considering an investmentrtment and are responsible forcash flows, in euros, are jects. The company knows that itss WACC for the project. The riskate on euros is 7%. e United States and the euro areauro WACC? e United States and the euro areauro WACC? WACC use the following formula:SD) – 1. (1 point.) In cell E37, input the function NPV. (1 point.)ess the value of the project by using the function IF.w Yes; otherwise display No. (1 point.) Problem 24-12 coupon payment date. It has a price of $99. What is the bond’s yield to maturity and yieldcall?Coupon ratePayment frequencyTime until first call date (years)Term of bond (years)Call priceCurrent price 5.00%Semi-annually23$100.00$99.00 Coupon paymentYield to callYield to maturity Requirements1. In cell D13, by using cell references, calculate the semi-annual coupon payment (1To calculate the yield to call of the bond, use the function RATE. In cell2. To calculate the yield to maturity of the bond, use the function RATE. In cellfunction RATE and cell references, calculate the yield to call of the bond3. using the function RATE and cell references, calculate the yield to maturity of thept.). o maturity and yield to coupon payment (1 pt.).E. In cell D14, by using theRATE.In cellD15, byf the bond(1 pt.).d to maturity of the bond (1 Problem 23-12 Three years ago, you founded Outdoor Recreation, Inc., a retailer specializing in the saleequipment and clothing for recreational activities such as camping, skiing, and hiking. Soyour company has gone through three funding rounds:RoundSeries ASeries BSeries C DateFeb. 2009Aug. 2010Sept. 2011 InvestorYouAngelsVenture Capital Currently, it is 2012 and you need to raise additional capital to expand your business. Youdecided to take your firm public through an IPO. You would like to issue an additional 6million new shares through this IPO. Assuming that your firm successfully completes itsyou forecast that 2012 net income will be $7.5 million.a. Your investment banker advises you that the prices of other recent IPOs have beenthat the P/E ratios, based on 2012 forecasted earnings, average 20.0. Assuming thaIPO is set at a price that implies a similar multiple, what will your IPO price per shb. What percentage of the firm will you own after the IPO?New shares2012 net income forecastForward P/E 6,500,000$7,500,00020.00 a. Your investment banker advises you that the prices of other recent IPOs have beenthat the P/E ratios, based on 2012 forecasted earnings, average 20.0. Assuming thaIPO is set at a price that implies a similar multiple, what will your IPO price per shNew shares outstandingEarnings per shareNew price with comparable P/Eb. What percentage of the firm will you own after the IPO?Percentage you own post IPO Requirements1. In cell E21, by using cell references, calculate the number of new shares outstandipt.).2.In cell E22, by using cell references, calculate the forecasted earnings per share (13. In cell E23, by using cell refer

ences, calculate the share price for the IPO (1 pt.).4. In cell E27, by using cell references, calculate the percentage of the firm that youafter the IPO (1 pt.). c., a retailer specializing in the sale ofh as camping, skiing, and hiking. So far,:SharesShare Price ($)500,0001.001,000,0002.002,000,0003.50 capital to expand your business. You havewould like to issue an additional 6.5your firm successfully completes its IPO,n. ices of other recent IPOs have been set suchrnings, average 20.0. Assuming that yourple, what will your IPO price per share be?the IPO? ices of other recent IPOs have been set suchrnings, average 20.0. Assuming that yourple, what will your IPO price per share be? the IPO? he number of new shares outstanding (1 he forecasted earnings per share (1 pt.). he share price for the IPO (1 pt.). he percentage of the firm that you own Problem 26-4The Greek Connection had sales of $32 million in 2009, and a cost of goods sold of $20balance sheet for the firm appears below:THE GREEK CONNECTIONBalance SheetAs of December 31, 2009(000)AssetsCashAccounts receivableInventoryTotal current assets $2,0003,9501,300$7,250 Net plant, propertyand equipmentTotal Assets $8,500$15,750 a. Calculate The Greek Connection’s net working capital in 2009.b. Calculate the cash conversion cycle of The Greek Connection in 2009.c. The industry average days sales outstanding ratio is 30 days. What would the cashGreek Connection have been in 2009 had it matched the industry average days salSales (000)Cost of Goods Sold (000) $32,000$20,000 a. Calculate The Greek Connection’s net working capital in 2009.Net working capital (000)b. Calculate the cash conversion cycle of The Greek Connection in 2009.Accounts receivable daysInventory daysAccounts payable days Cash conversion cycle (days) c. The industry average days sales outstanding ratio is 30 days. What would the cashGreek Connection have been in 2009 had it matched the industry average days salIndustry accounts receivable days 30 Cash conversion cycle (days) Requirements1. In cell D31, by using cell references, calculate the company’s net working capital2. To calculate the cash conversion cycle, you need to calculate accounts receivable ddays, and accounts payable days.In cell D35, by using cell references, calculate the accounts receivable days(1 pt.)3. In cell D36, by using cell references, calculate the inventory days (1 pt.).4. In cell D37, by using cell references, calculate the accounts payable days (1 pt.).5. In cell D38, by using cell references, calculate the cash conversion cycle (1 pt.).6. In cell D44, by using cell references, calculate the cash conversion cycle based onaccounts receivable days (1 pt.). nd a cost of goods sold of $20 million. A simplified CONNECTIONe Sheetber 31, 20090)Liabilities and EquityAccounts payableNotes payableAccrualsTotal current liabilitiesLong-term debtTotal liabilitiesCommon equityTotal liabilities and equity $1,5001,0001,220$3,720$3,000$6,7209,030$15,750 ital in 2009.Connection in 2009.s 30 days. What would the cash conversion cycle for Thed the industry average days sales outstanding?Days in a year ital in 2009. Connection in 2009. 365 s 30 days. What would the cash conversion cycle for Thed the industry average days sales outstanding? company’s net working capital (1 pt.).calculate accounts receivable days, inventory accounts receivable days(1 pt.).nventory days (1 pt.).accounts payable days (1 pt.).cash conversion cycle (1 pt.). cash conversion cycle based on the industry