Start with the partial model in the file Ch17 P15 Build a Model.xls on the textbook’s Web site. Yohe Telecommunications is a multinational corporation that produces and distributes telecommunications technology. Although its corporate headquarters are located in Maitland, Florida, Yohe usually must buy its raw materials in several different foreign countries using several different foreign currencies. The matter is further complicated because Yohe usually sells its products in other foreign countries. One product in particular, the SY-20 radio transmitter, draws its principal components— Component X, Component Y, and Component Z—from Germany, Mexico, and England, respectively. Specifically, Component X costs 84 euros, Component Y costs 650 Mexican pesos, and Component Z costs 105 British pounds. The largest market for the SY-20 is in Japan, where it sells for 38,000 Japanese yen. Naturally, Yohe is intimately concerned with economic conditions that could adversely affect dollar exchange rates. You will find Tables 17-1, 17-2, and 17-3 useful for this problem.

a. How much, in dollars, does it cost for Yohe to produce the SY-20? What is the dollar sale price of the SY-20?

b. What is the dollar profit that Yohe makes on the sale of the SY-20? What is the percentage profit?

c. If the U.S. dollar were to weaken by 10% against all foreign currencies, what would be the dollar profit for the SY-20?

d. If the U.S. dollar were to weaken by 10% only against the Japanese yen and remained constant relative to all other foreign currencies, what would be the dollar and percentage profits for the SY-20?

e. Using the forward exchange information from Table 17-3, calculate the return on 90-day securities in England if the rate of return on 90-day securities in the United States is 4.9%.

f. Assuming that purchasing power parity (PPP) holds, what would be the sale price of the SY-20 if it were sold in England rather than in Japan?

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Start with the partial model in the file Ch25 P05 Build a Model.xlsx on the textbook’s Web site. Duchon Industries had the following balance sheet at the time it defaulted on its interest payments and filed for liquidation under Chapter 7. Sale of the fixed assets, which were pledged as collateral to the mortgage bondholders, brought in \$900 million, while the current assets were sold for another \$401 million. Thus, the total proceeds from the liquidation sales were \$1,300 million. The trustee’s costs amounted to \$1 million; no single worker was due more than the maximum allowable wages per worker; and there were no unfunded pension plan liabilities. Determine the amount available for distribution to shareholders and all claimants.

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Start with the partial model in the file Ch24 P06 Build a Model.xlsx on the textbook’s Web site. Use the following information and data.

F. Pierce Products Inc. is financing a new manufacturing facility with the issue in March of \$20,000,000 of 20-year bonds with semiannual interest payments. It is now October, and if Pierce were to issue the bonds now, the yield would be 10% because of Pierce’s high risk. Pierce’s CFO is concerned that interest rates will climb even higher in coming months and is considering hedging the bond issue. The following data are available:

a. Create a hedge with the futures contract for Pierce’s planned March debt offering of \$20 million using the March Treasury Bond futures contract. What is the implied yield on the bond underlying the futures contract?

b. Suppose that interest rates fall by 300 basis points. What are the dollar savings from issuing the debt at the new interest rate? What is the dollar change in value of the futures position? What is the total dollar value change of the hedged position?

c. Create a graph showing the effectiveness of the hedge if the change in interest rates, in basis points, is -300, -200, 2100, -, 100, 200, or 300. Show the dollar cost (or savings) from issuing the debt at the new interest rates, the dollar change in value of the futures position, and the total dollar value change.

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Start with the partial model in the file Ch17 P12 Build a Model.xlsx on the textbook’s Web site. Kasperov Corporation has an unlevered cost of equity of 12% and is taxed at a 40% rate. The 4-year forecasts of free cash flow and interest expenses are shown in the following table; free cash flow and interest expenses are expected to grow at a 5% rate after Year 4. Using the compressed APV model, answer the following questions.

a. Calculate the estimated horizon value of unlevered operations at Year 4 (i.e., immediately after the Year-4 free cash flow).

b. Calculate the current value of unlevered operations.

c. Calculate the estimated horizon value of the tax shield at Year 4 (i.e., immediately after the Year-4 free cash flow).

d. Calculate the current value of the tax shield.

e. Calculate the current total value.

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Start with the partial model in the file Ch15 P13 Build a Model.xlsx on the textbook’s Web site. J. Clark Inc. (JCI), a manufacturer and distributor of sports equipment, has grown until it has become a stable, mature company. Now JCI is planning its first distribution to shareholders. (See the file for the most recent year’s financial statements and projections for the next year, 2019; JCI’s fiscal year ends on June 30.) JCI plans to liquidate and distribute \$500 million of its short-term securities on July 1, 2019, the first day of the next fiscal year, but it has not yet decided whether to distribute with dividends or with stock repurchases.

a. Assume first that JCI distributes the \$500 million as dividends. Fill in the missing values in the file’s balance sheet column for July 1, 2019, which is labeled “Distribute as Dividends.” (Hint: Be sure that the balance sheets balance after you fill in the missing items.) Assume that JCI did not have to establish an account for dividends payable prior to the distribution.

b. Now assume that JCI distributes the \$500 million through stock repurchases. Fill in the missing values in the file’s balance sheet column for July 1, 2019, which is labeled “Distribute as Repurchase.” (Hint: Be sure that the balance sheets balance after you fill in the missing items.)

c. Calculate JCI’s projected free cash flow; the tax rate is 40%.

d. What is JCI’s current intrinsic stock price (the price on 6/30/2018)? What is the projected intrinsic stock price for 6/30/2019?

e. What is the projected intrinsic stock price on 7/1/2019 if JCI distributes the cash as dividends?

f. What is the projected intrinsic stock price on 7/1/2019 if JCI distributes the cash through stock repurchases? How many shares will remain outstanding after the repurchase?i

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Start with the partial model in the file Ch09 P11 Build a Model.xlsx on the textbook’s Web site, which contains Henley Corporation’s most recent financial statements. Use the following ratios and other selected information for the current and projected years to answer the next questions.

a. Forecast the parts of the income statement and balance sheet that are necessary for calculating free cash flow.

b. Calculate free cash flow for each projected year. Also calculate the growth rates in free cash flow each year to ensure that there is constant growth (that is, the same as the constant growth rate in sales) by the end of the forecast period.

c. Calculate the return on invested capital (ROIC 5 NOPAT/[Total net operating capital]) and the growth rate in free cash flow. What is the ROIC in the last year of the forecast? What is the long-term constant growth rate in free cash flow (gL is the growth rate in FCF in the last forecast period because all ratios are constant)? Do you think that Hensley’s value would increase if it could add growth without reducing its ROIC? (Hint: Growth will add value if the ROIC . WACC/[11WACC]). Do you think that the company will have a value of operations greater than its total net operating capital? (Hint: Is ROIC . WACC/[1 1 gL]?)

d. Calculate the current value of operations. (Hint: First calculate the horizon value at the end of the forecast period, which is equal to the value of operations at the end of the forecast period. Assume that the annual growth rate beyond the horizon is equal to the growth rate at the horizon.) How does the current value of operations compare with the current amount of total net operating capital?

e. Calculate the intrinsic price per share of common equity as of 12/31/2018.

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Start with the partial model in the file Ch09 P10 Build a Model.xlsx on the textbook’s Web site, which contains the 2018 financial statements of Zieber Corporation. Forecast Zieber’s 2019 income statement and balance sheets. Use the following assumptions: (1) Sales grow by 6%. (2) The ratios of expenses to sales, depreciation to fixed assets, cash to sales, accounts receivable to sales, and inventories to sales will be the same in 2019 as in 2018. (3) Zieber will not issue any new stock or new long-term bonds. (4) The interest rate is 11% for long-term debt, and the interest expense on longterm debt is based on the average balance during the year. (5) No interest is earned on cash. (6) Regular dividends grow at an 8% rate.

Calculate the additional funds needed (AFN). If new financing is required, assume it will be raised by drawing on a line of credit with an interest rate of 12%. Assume that any draw on the line of credit will be made on the last day of the year, so there will be no additional interest expense for the new line of credit. If surplus funds are available, pay a special dividend.

a. What are the forecasted levels of the line of credit and special dividends? (Hints: Create a column showing the ratios for the current year; then create a new column showing the ratios used in the forecast. Also, create a preliminary forecast that doesn’t include any new line of credit or special dividends. Identify the financing deficit or surplus in this preliminary forecast and then add a new column that shows the final forecast that includes any new line of credit or special dividend.)

b. Now assume that the growth in sales is only 3%. What are the forecasted levels of the line of credit and special dividends?

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Start with the partial model in the file Ch08 P24 Build a Model.xlsx on the textbook’s Web site. Hamilton Landscaping’s dividend growth rate is expected to be 30% in the next year, drop to 15% from Year 1 to Year 2, and drop to a constant 5% for Year 2 and all subsequent years. Hamilton has just paid a dividend of \$2.50, and its stock has a required return of 11%.

a. What is Hamilton’s estimated stock price today?

b. If you bought the stock at Year 0, what are your expected dividend yield and capital gains for the upcoming year?

c. What are your expected dividend yield and capital gains for the second year (from Year 1 to Year 2)? Why aren’t these the same as for the first year?

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