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Question
Problem Assignment Three
Please solve the numerical portions of the problems below using Excel as an at
remainder of the solutions in the spaces given, but you may adjust the spaces i
11!" The e#uity section of the balance sheet for $ope% &igital Entertainment is'ommon stoc(, )*.+* par )++,***
Additional paidin capital )--,***
/etained earnings )0,***
a. ow many shares has the company issued2
!olution "omputation of the #o of shares issued by company
3o of shares issued 4 'ommon stoc(
Par value
5here as
'ommon stoc( ) ++,***.**
Par value ) *.+*
3o of shares issued 4 ) ++,***.**
) *.+*
3o of shares issued 4 1,**,***.**
$ence the #o of shares issued by company is %,&'&,&&&&&
b. 5hat is the boo( value per share2
!olution "omputation of the ook *alue per !hare
6oo( 7alue per 8hare Total common stoc(
3o of shares
5here as
Total common stoc( )1,-!,***
3o of shares 1,**,***.**
6oo( 7alue per 8hare )1,-!,***
1,**,***.**
6oo( 7alue per 8hare ) 1.!*0
$ence the ook +alue per share is %-&.
c. 8uppose that $ope% &igital has made only one o9ering of common stoc(. At
!olution computation of the /arket price per !hare
:ar(et price per 8hare E#uity 'apital amount
3o of shares
5here as
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E#uity 'apital amount );;,***
3o of shares 1,**,***.**
:ar(et price per 8hare );;,***
1,**,***.**
:ar(et price per 8hare ) *.;1
$ence the /arket 0rice per share is &1%
110" A reported on its ba
the
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"onclusion
6he rm is loss &25 per compare to yesterday but company recei+ed
11" :elt%er Electronics estimates that its total L G depreciationM
and the data given above to estimate :elt%er@s free cash Cow in the coming ye
!olution7 "omputation of the /elt4ers free cash 8ow in the coming y
0articulars Amount (/il)
Bperating cash Cows ) !!.;*$ess" Kncrease in gross
$ess" Kncrease in current assets ) =-.!*>
Add" increase in accounts payable ) 1.!*
Add" Kncrease in accrued liabilities ) *.F*
Dree cash Cow in coming year ) -.0*
$ence the Free "ash Flow in coming year is 29.&
b.ow much of the free cash Cow will the
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ond !i4e of Issue bonds
A 1-***
6 -****
' !****
& +****
E 1*****
D +*****
!olution "omputation of the after 6a< cost of calling the issue
ond !i4e of Issue bonds
A 1-***
6 -****
' !****
& +****E 1*****
D +*****
"omputation of the after 6a< cost of calling the issue par share
ond !i4e of Issue bonds
A 1-***
6 -****
' !****
& +****
E 1*****D +*****
P1!!" The Cotation cost, the initial maturity, and the number of years remainin
in the following table for a number of bonds. The issuing
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A -+*,***
6 +**,***
' 1-+,***
& ;+*,***
E 0+*,***
b. &etermine the tax savings, if any, expected to result from the unamorti%ed C
!olution "omputation of the following
ondsFlotation
"ost
A -+*,***
6 +**,***
' 1-+,***
& ;+*,***
E 0+*,***
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g cell and press F2(Function Key on key board),
achment. Provide the
f necessary.
as follows"
hat price did it sell shares to the mar(et2
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lance sheet. ?esterday
end and the closing price is )--.**.
the yesterday
alue per share
the 6oday
alue per share
erday share price
loss per share
tion?esterday :ar(et 'apitali%ation
Kn total 'apital mar(et
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di+idend of &-5 per share
year will be )!.+ million.
tand e#uity
erating cash Cows
ccur in the accounts noted.
r.
ar
internal
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0ar +alue "all price
1*** 1*+*
1*** 1*!*
1*** 1*1+
1*** 1*+*
1*** 1*+
1*** 1*0*
0ar +alue "all price 6a< =ate
) 1,*** ) 1,*+* *. ) 1-,***,***
) 1,*** ) 1,*!* *. ) -*,***,***
) 1,*** ) 1,*1+ *. ) !*,***,***
) 1,*** ) 1,*+* *. ) +*,***,***) 1,*** ) 1,*+ *. ) 1**,***,***
) 1,*** ) 1,*0* *. ) +**,***,***
0ar +alue "all price 6a< =ate After ta< "all price is
) 1,*** ) 1,*+* *. ) 0!*.**
) 1,*** ) 1,*!* *. ) 01F.**
) 1,*** ) 1,*1+ *. ) 0*.**
) 1,*** ) 1,*+* *. ) 0!*.**
) 1,*** ) 1,*+ *. ) 0-;.**) 1,*** ) 1,*0* *. ) 0!0.**
g to maturity are shown
rac(et.
emaining to :aturity
--
+
1*
1
0
for each bond
Initial >ears remaining6a< =ate
/aturity to maturity
6otal issue +alue ?0ar
Annual Amorti4ationof 8otation cost
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!* -- *N :,-----
1+ + *N --,-----
-* 1* *N .,25&&&
1* 1 *N 15,&&&&&
1+ 0 *N 9-,-----
otation cost if the bond were called today.
Initial >ears remaining6a< =ate
/aturity to maturity
!* -- *N ) F,!!!.!!
1+ + *N ) !!,!!!.!!
-* 1* *N ) 0,-+*.**
1* 1 *N ) ;+,***.**
1+ 0 *N ) !,!!!.!!
Annual Amorti4ationof 8otation cost
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) 1-,0**,*** ) ;,-**,*** ) ;,+0*,***
) -*,0**,*** ) 1-,***,*** ) 1-,!0*,***
) !*,+*,*** ) 1F,***,*** ) 1F,-;*,***
) +-,+**,*** ) !*,***,*** ) !1,+**,***) 1*,+**,*** ) 0*,***,*** ) 0-,;**,***
) +!*,***,*** ) !**,***,*** ) !1F,***,***
6otal issue +alue ?"all
6otal +alue afterta< at par
6otal +alueafter ta< at"aling the
issue
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1-,---
..,..1
25,&&&
-&,&&&
%&9,&&&
6a< !a+ings onunamorti4ed
amount
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If you want the formulas and any calculations, select the corresponding ce
It will show all calculations and formulas Automatically
Question
1;1+ #ote 6his Question is not clear so take
8trident 'orporation is attempting to determine whether to lease or purchase a ne
telephone system. The
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The after tax cash flows are
Year 1 2 3
Payment $ 2-,)1. $ 2-,)1. $ 2-,)1.
'nterest tax shel $ 43,0005 $ 42,-/-5 $ 41,2/5
eprecaton tax shel $ 4/,0005 $ 4/,0005 $ 4/,0005
After tax mantenance $ 2,100 $ 2,100 $ 2,100
After tax cash flow $ 15,816 $ 16,332 $ 16,888
B. Caluclate the present value of each cash outflow stream, usin the after!tax cost of "e#t.
!olution "omputation of the following
The after tax cost of et s -*+
The P6 factors are for -*+
Year 1 2 3
P6 factor 0*+. 0*1+) 0*/).3
Lease
P6 of cash flows 12,.32 12,0// 11,+.)
otal 82,%21
Purchase
P6 of cash flows 1+,13+ 1-,+. 1-,)
otal &',%(&
c. 5hich alternativelease or purchasewould you recommend and why2
!olution computation of the fellowing
Purchase s etter opton why ecause the P6 of cost s lower than the leasn&
Question
1;1 #ote 6his Question is not clear so take
:8 'orporation is attempting to determine whether to lease or purchase research
The
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Lease Payment $ 3,+00 $ 3,+00 $ 3,+00
After tax lease payment $ +.,100 $ +.,100 $ +.,100
Asset purchase $ 2+,000
Total after tax cash flow $ +.,100 $ +.,100 $ /1,100
Purchase
We frst ma!e the amort"aton scheule to separate the nterest an prncpal as there wll e tax
eneft on nterest
%penn& 'nterest
Year (alance Payment at 10
1 $ 2+0,000 $ 100,+2/ $ 2+,000
2 $ 1)-,-)2 $ 100,+2/ $ 1),--)
3 $ 1,31 $ 100,+2/ $ ,13
sn& the + years tra&ht lne metho eprecaton an the eprecaton tax shel s
Year eprecaton Tax shel
1 $ /3,333 $ 33,333
2 $ +/,1+) $ 23,2.3
3 $ 30,-.- $ 12,1/+
The after tax cash flows are
Year 1 2 3
Payment $ 100,+2/ $ 100,+2/ $ 100,+2/
'nterest tax shel $ 410,0005 $ 4.,)5 $ 43,.+.5
eprecaton tax shel $ 433,3335 $ 423,2.35 $ 412,1/+5
After tax mantenance $ 7 ### $ 7
After tax cash flow $ 5&,1(5 $ &%,286 $ 8',68&
B. Caluclate the present value of each cash outflow stream, usin the after!tax cost of "e#t.
!olution "omputation of the following
The after tax cost of et s .
The P6 factors are for .
Year 1 2 3
P6 factor 0*-3- 0*/00 0*/3.
LeaseP6 of cash flows +2,2+ -,2 ./,03
otal 1&%,('6
Purchase
P6 of cash flows +3,+) .2,++- )1,10+
otal 18&,616
c. 5hich alternativelease or purchasewould you recommend and why2
!olution computation of the fellowingLease s etter opton why ecause the P6 of cost s lower than the purchasn&
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ll and press F2(Function Key on key board),
from google books
debt
year
nce
paid
a ;.+
rm in
.
and
ery
- +
$ 22,000 $ 22,000
$ 13,200 $ 13,200
$ 30,000
$ 13,200 $ -3,200
8losn&
Prncpal (alance
$ 1),21. $ /2,)/-
$ 1/,+0) $ .-,2))
$ 1,/+ $ --,3/2
$ 21,3/) $ 22,-
$ 22,1 $ 3
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' 5
$ 2-,)1. $ 2-,)1.
$ 41,3315 $ 4.05
$ 4/,0005 $ 4/,0005
$ 2,100 $ 2,100
$ 1&,'85 $ 18,126
9 5
0*/3/. 0*/02+
11,0. 3-,...
1-,..2 1-,+-+
some assumed gures please change the gures answer change
e#uipment. ?early payment is not given assumed under Trail and erro
terms of the lease
year life of the
d along with the
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8losn&
Prncpal (alance
$ )+,+2/ $ 1)-,-)2
$ /3,0/1 $ 1,31
$ 1,3/ $ 2
3ot given in problem
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r basis
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