公司理财Corporate-Finance-第九版-CASE答案.doc

1、Case SolutionsFundamentals of Corporate FinanceRoss, Westerfield, and Jordan9th editionCHAPTER 1THE McGEE CAKE COMPANY1. The advantages to a LLC are: 1) Reduction of personal liability. A sole proprietor has unlimited liability, which can include the potential loss of all personal assets. 2) Taxes.

2、Forming an LLC may mean that more expenses can be considered business expenses and be deducted from the companys income. 3) Improved credibility. The business may have increased credibility in the business world compared to a sole proprietorship. 4) Ability to attract investment. Corporations, even

3、LLCs, can raise capital through the sale of equity. 5) Continuous life. Sole proprietorships have a limited life, while corporations have a potentially perpetual life. 6) Transfer of ownership. It is easier to transfer ownership in a corporation through the sale of stock.The biggest disadvantage is

4、the potential cost, although the cost of forming a LLC can be relatively small. There are also other potential costs, including more expansive record-keeping.2. Forming a corporation has the same advantages as forming a LLC, but the costs are likely to be higher.3. As a small company, changing to a

5、LLC is probably the most advantageous decision at the current time. If the company grows, and Doc and Lyn are willing to sell more equity ownership, the company can reorganize as a corporation at a later date. Additionally, forming a LLC is likely to be less expensive than forming a corporation.CHAP

6、TER 2CASH FLOWS AND FINANCIAL STATEMENTS AT SUNSET BOARDSBelow are the financial statements that you are asked to prepare.1. The income statement for each year will look like this:Income statement2008 2009Sales $247,259 $301,392Cost of goods sold 126,038 159,143Selling in fact, all three turnover ra

7、tios are above the upper quartile. This may mean that S the company must maintain a minimum specified level of working capital or a minimum specified current ratio; the company must maintain any collateral in good working order. The negative side of positive covenants is that the company is restrict

8、ed in its actions. The positive covenant may force the company into actions in the future that it would rather not undertake.8. A negative covenant would reduce the coupon rate. The presence of negative covenants protects bondholders from actions by the company that would harm the bondholders. Remem

9、ber, the goal of a corporation is to maximize shareholder wealth. This says nothing about bondholders. Examples of negative covenants would be: the company cannot increase dividends, or at least increase beyond a specified level; the company cannot issue new bonds senior to the current bond issue; t

10、he company cannot sell any collateral. The downside of negative covenants is the restriction of the companys actions.9. Even though the company is not public, a conversion feature would likely lower the coupon rate. The conversion feature would permit bondholders to benefit if the company does well

11、and also goes public. The downside is that the company may be selling equity at a discounted price. 10. The downside of a floating-rate coupon is that if interest rates rise, the company has to pay a higher interest rate. However, if interest rates fall, the company pays a lower interest rate. CHAPT

12、ER 8STOCK VALUATION AT RAGAN, INC.1. The total dividends paid by the company were $126,000. Since there are 100,000 shares outstanding, the total earnings for the company were: Total earnings = 100,000($4.54) = $454,000This means the payout ratio was:Payout ratio = $126,000/$454,000 = 0.28So, the re

13、tention ratio was:Retention ratio = 1 .28 = 0.72Using the retention ratio, the companys growth rate is:g = ROE b = .280.25*(.72) = .1806 or 18.06%The dividend per share paid this year was:D0 = $63,000 / 50,000D0 = $1.26Now we can find the stock price, which is:P0 = D1 / (R g)P0 = $1.26(1.1806) / (.2

14、0 .1806)P0 = $76.752. Since Expert HVAC had a write off which affected its earnings per share, we need to recalculate the industry EPS. So, the industry EPS is:Industry EPS = ($0.79 + 1.38 + 1.06) / 3 = $1.08Using this industry EPS, the industry payout ratio is:Industry payout ratio = $0.40/$1.08 =

15、.3715 or 37.15%C-22 CASE SOLUTIONSSo, the industry retention ratio isIndustry retention ratio = 1 .3715 = .6285 or 62.85%CHAPTER 8 C-23 This means the industry growth rate is:Industry g = .1233(.6285) = .0775 or 7.75%The company will continue to grow at its current pace for five years before slowing

16、 to the industry growth rate. So, the total dividends for each of the next six years will be:D1 = $1.26(1.1806) = $1.49D2 = $1.49(1.1806) = $1.76D3 = $1.76(1.1806) = $2.07D4 = $2.07(1.1806) = $2.45D5 = $2.45(1.1806) = $2.89D6 = $2.89(1.07849) = $3.11The stock price in Year 5 with the industry requir

17、ed return will be:Stock value in Year 5 = $3.11 / (.1167 .0775) = $79.54This means the total value of the stock today is:P0 = $1.149/1.1167 + $1.76/1.11672 + $2.07/1.11673 + $2.45/1.11674 + ($2.89 + 79.54) / 1.11675P0 = $53.283. Using the revised industry EPS, the industry PE ratio is:Industry PE =

18、$13.09 / $1.08 = 12.15Using the original stock price assumption, Ragans PE ratio is:Ragan PE (original assumptions) = $76.75 / $4.54 = 16.90Using the revised assumptions, Ragans PE = $53.28 / $4.54 = 11.74Obviously, using the original assumptions, Ragans PE is too high. The PE using the revised assu

19、mptions is close to the industry PE ratio. Using the industry average PE, we can calculate a stock price for Ragan, which is:Stock price implied by industry PE = 12.15($4.3254) = $55.184. If the ROE on the companys projects exceeds the required return, the company should retain earnings and reinvest

20、. If the ROE on the companys projects is lower than the required return, the company should pay dividends. This makes logical sense. Consider a company with a 10 percent required return. If the company can keep retained earnings and reinvest those earnings at 15 percent, C-24 CASE SOLUTIONSsharehold

21、ers would be better off since the dividends in future years would be more than needed for the required return. CHAPTER 8 C-25 5. Again, we will assume the results in Question 2 are correct. The growth rate of the company we calculated in this question was the industry growth rate of 7.75 percent. Si

22、nce the growth rate is:g = ROE bIf we assume the payout ratio remains constant, the ROE is:.0775 = ROE(.72)ROE = .1073 or 10.73%6. The most obvious solution is to retain more of the companys earnings and invest in profitable opportunities. This strategy will not work if the return on the companys investment is lower than the required return on the companys stock.CHAPTER 9BULLOCK GOLD MINING1. An example spreadsheet is: