1.

FCF_bad 137,022.00
FCF_good 188,017.00
Cost 100,655.00
Cost of cap 20%
R_f 0.11
a) NPV 34,777.92

b) MV_e 135,432.92

c) CF_lev 100,655.00
CF_eq 36,367.00
or 87,362.00
MV_leve 34,777.92

2. CF 30
Cost 2.1

a) MV_equity 4.66666666667

b) Need to sell 0.3185840708

c) MV_e1 2.56666666667
MV_e2 2.56666666667

3. Good state 48 0.75

Bad state 18 0.25
R_f 5%
Cost of cap 10%

a) MV_0 36.8181818182

b Debt 18
MV_0 19.6753246753

c) R wo leverage -0.55555555556
R with leverage -104% -100%

4. Good state 444

Bad state 226
MV_0 257

a) E® 0.30350194553

b) R_f 5%
Borrow 52
Market value 205
c) God state 389.4
Bad state 171.4
E® 0.36780487805

5. ABC
No debt

XYZ
Debt 5000
R_d 10%

FCF_good 5600
FCF_bad 5300
ABC XYZ
FCF Debt payments Equity dividends D payments E div
a) 5600 0 5600 500 5100
5300 0 5300 500 4800

6. Alpha
Shares 14
P 24
Omega
Shares 22
Debt 100

a) Assets 336
Equity 236
P 10.7272727273

b)

7. Cash 5
Shares 6
P 20
MV of options 10

a) MV 125

b) Equity 115
Share price 20

8. Shares 103.5
Equity 4410
Debt 1210
a) P 42.6086956522
New shares 28.3979591837

b) Buy new shares by borrowing

Buy 27.4376417234
Borrow 1169.0821256

9. Shares 270
P 23.64
Borrowing
Short term 921
Long term 820
Issuing 1015
Cash 94

a)
i) Assets 6382.8
Liabilities 6382.8

ii) Assets 9138.8

Liabilites 9138.8

iii) Assets 6288.8

Liabilites 6288.8

b) Shares repurcha 120.558375635

Shares 149.441624365
Value 23.64

10. More debt = More risk on equity

Often riskier equity with risk free debt because it takes on little risk

14.7*, 14.8*, 14.12, 14.14*, 14.17*, 14.19*, and 14.22*.

12. Ru 12%

a) D/E 0.5
Rd 5%
Re 0.155

b) D/E 1.5
Rd 7%
Re 0.195

c) Returns are higher because risk is higher

14. MV 470
Debt 299
 Re 13%
Rd 5%

a) Wacc (Ru) 0.0988946684

b) Debt issued 71
i) Wacc 0.09476190476
Re 0.13

ii) If risk of debt increases than risk of equity decreases, therefore lower Re

17. Shares 10
Debt 84
Price 73
Equity 730
Re 8.50%
Will issue debt 354
Use to pay off existing debt
Dividend 270

a) Share price 100

b) Share price 46

c) Rd_1 4.39%
Rd_2 4.93%
Ru 8.08%
Re 10.50%

19. MV 150
Beta 0.7
Debt issued 39
Cash 11
Be 1.05

20. shares 100

P 1
Campell owns 20 million shares
Good state 160
Bad state 75
Rf 2.00%

a) MV(debt 80
b) FV 75
Could purchase 73.5294117647
Would not own 6.47058823529

c) Payoff 95.7777777778
d) Value of portfoli 80

e) Yield 0.19722222222
f) Re 17.5%
g) Rd 6.736%

22. Raise 160

Earnings 31
Shares 9
P 67

a) Sell new shares

New shares 2.38805970149
Shares total 11.3880597015
EPS 2.72214941022

b) New debt
R_d 8%
Earnigns 18.2
EPS 2.02222222222

c) Issues equity Forward PE 24.6129032258

Issues Debt Forward PE 33.1318681319

24. Equity 2.20%

Debt 97.80%
Market cap 10.04
M/B 0.9
Ru 4.19%
Rd 3.60%

a) Assets 456.363636364
E 10.04
D 446.323636364
Book Assets 507.070707071 5.17861171717
Book E 11.1555555556 0.5157979798
Book D 495.915151515
ROE 0.5157979798

Equity 4.40%
Debt 95.60%
Market cap 20.08
M/B 0.9
Ru 4.19%
Rd 3.60%

Assets 456.363636364
E 20.08
D 436.283636364
Book Assets 507.070707071
Book E 22.3111111111
Book D 484.75959596
ROE 0.2758989899
Exercises related to chapter 15: 15.3*, 15.5, 15.14*, 15.18*, 15.20*, 15.21*, and 15.26*.

1. EBIT 133
Interest exp 49
T_c 35%

a) Net income 54.6

b) NI+interest 103.6
c) Net income 86.45
d) Tax shield 17.15

3. T_c 30%
EBIT 1000
R_f 8%

a) Net profit 700 =Dividends

Value of equit 8750

b) Net profit 210

Value of equit 2625
Value of debt 8750
Value of firm 11375

c) Difference 2625
d) Percentage 30%

5. Debt 116
Rd 8%
Repay 29 each year
T_c 30%
Remain loan Interest Tax shield PV (Tax shield
1 116 9.28 2.784 2.57777778
2 87 6.96 2.088 1.79012346
3 58 4.64 1.392 1.10501448
4 29 2.32 0.696 0.51158078
5 0 0 0 0
23.2 6.96 5.98449649
PV Tax shield 5.984496491614

6. Debt 15
T 35%
R_d 7%

a) Tax shield 0.3675

b) PV 5.25
c) PV_6% 5.25

7. Years 10
 Debt 15
Coupon 7%
T 35%
R_d 2%
a) Tax shield 0.3675
b) PV tax shield 18.375

8. Debt 60 0 1 2 3
R_d 10% Debt 60 57.6 55.2 52.8
Repay 4% Repayed 2.4 2.4 2.4 2.4
T 35% Interest 6 5.76 5.52 5.28
Tax shield 2.1 2.016 1.932 1.848
PV TS 2.1 1.83272727 1.596694215 1.38843
Sum PV 14.712815

9. Excess cash 11
T 35%
PV Taxcost 3.85

10. Debt 1.3

equity 2.7
D/V 0.325
E/V 0.675
T 33%
R_e 12%
Rd 6%

Wacc preT 0.1005

Wacc 0.087435

14. D/E 0.78

Re 12%
Rd 7%
T 38%
Market cap 258.00
D 201.24
Value 459.24

a) FCF 11.00
E/V 0.561797752809
D/V 0.438202247191
WACC 0.086433707865
Growth 6.25%
Value 459.2396383938

b) Pre tax wacc 0.09808988764

Value 308.912264843
V_TS 150.3273735509
15. Market cap 72
Debt 100
D/E 1.388888888889
Rd 7.40%
T 38%

a) FCF 13.76
g 2%
WACC 10%
Value 172.0000063976

b) D/V 0.581395348837
E/V 0.418604651163
R_e 18%
Wacc 0.1
Pre tax wacc 0.116348837209
Value 142.8143857108

PV TS 29.18562068674

16. FCF 18
T 38%
R_unlevered 16%
Debt 75.25
a) Value_unlev 112.5
b) Value_lev 141.095

17. Shares 7.26

T 31%
special div 42
DPS 5.785123966942
Share change 1.793388429752

18. Shares 27
P 15
Borrow 65
T 38%

a) MV_before 405
b) MV_after 494.7
c) Share price 15.91481481481
Shares repurc 4.084244821969
Shares 22.91575517803
d) Assets 429.7
Equity 364.7
Debt 65
Share price 15.91481481481
19. Assets 25
Shares 6
Borrow 7
T 35%

a) P 4.166666666667
b) P_afterdebt 4.575
No, tax shield exceeds "premium"
c) E 20.45
Shares 4.356807511737
P_afterrepur 4.69380387931
d) Lowest P 4.575

20. T_corp 35%

T_div/cg 25%
T_interest 32.40%
Yearly int 30

a) Debtholders 20.28
b) Div cuts 19.5
c) E holder cut 14.625
d) Less gov
 4 5 6 7 8 9 10 11 12 13
50.4 48 45.6 43.2 40.8 38.4 36 33.6 31.2 28.8
2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4
5.04 4.8 4.56 4.32 4.08 3.84 3.6 3.36 3.12 2.88
1.764 1.68 1.596 1.512 1.428 1.344 1.26 1.176 1.092 1.008
1.204836 1.043148 0.9009 0.775895 0.666173 0.569987 0.485785 0.412181 0.347945 0.291982
 14 15 16 17 18 19 20 21 22 23
26.4 24 21.6 19.2 16.8 14.4 12 9.6 7.2 4.8
2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4
2.64 2.4 2.16 1.92 1.68 1.44 1.2 0.96 0.72 0.48
0.924 0.84 0.756 0.672 0.588 0.504 0.42 0.336 0.252 0.168
0.243318 0.201089 0.164528 0.132952 0.105757 0.082408 0.06243 0.045404 0.030957 0.018762
 24 25
2.4 2.398E-14
2.4 2.4
0.24 2.398E-15
0.084 8.393E-16
0.008528 7.747E-17
Chap 16

1. State 1 147 0.25

State 2 136 0.25
State 3 91 0.25
State 4 82 0.25
r_f 5%

a) Value 108.5714
b) ZC debt 100
Value of debt 88.80952
c) Yield 0.126005
E_r 5%
d) Value of equity 19.7619
Total value 108.5714

2. Debt 31
Assets 77

a) Shares 11
Shares price 4.181818
b) New shares 7.413043
c) Same share price

7. Firm A pays 79 2 years

Firm B Pays 83 2 years

a) Would earn 59.25

b) E_w(a) 154.2381
E_w(b) 150.7381
c) Need to pay more to adjust for the risk of bankruptcy, because this decreases expected wages

16.8 State 1 147 0.25

State 2 136 0.25
State 3 91 0.25
State 4 82 0.25
r_f 5%
BR costs 26%

a) Value 108.5714
b) ZC debt 100
Value of debt 78.1
c) Yield 0.28041
Return 5%
d) Value of equity 19.7619
Total value 97.8619
97.8619
e) Shares 10
Share price 10.85714
d) Share price 9.78619

16.9 Issue equity 40

FCF 9
Shares 5
R_u 9%

a) NPV 60
b) Share price 12

Borrow instead 40
T 30%
c) Share price 14.4
d) FCF 8
NPV 48.88889
Share price 12.17778

13. Debt 0 40 50 60 70 80 90
PV TS 0 0.76 0.95 1.14 1.33 1.52 1.71
Prob of FD 0 0 1% 2% 7% 16% 31%
R_f 5%
a) Cost(1mio) 0 0.76 0.94 1.12 1.26 1.37 1.41
b Cost(5mio) 0 0.76 0.90 1.04 1.00 0.76 0.23
c Cost(27mio) 0 0.76 0.69 0.63 - 0.47 - 2.59 - 6.26

On May 14, 2008, General Motors paid a dividend of $0.25 per share. During the same quarter GM lost a staggering
16-16. billion or $27.33 per share. Seven months later the company asked for billions of dollars of government aid and ultim
declared bankruptcy just over a year later, on June 1, 2009. At that point a share of GM was worth only a little more
dollar.
If you ignore the possibility of a government bailout, the decision to pay a dividend given how close the company was
a. financial distress is an example of what kind of cost?

b. What would your answer be if GM executives anticipated that there was a possibility of a government bailout should

a. Agency cost—cashing out

By paying a dividend, executives increased the probability of bankruptcy and therefore the probability of receiving governm
b. funds. Since these government funds are funds that investors would not otherwise be entitled to, the payment of a dividend c
actually raise firm value in this case.

16.19 D/E 1.5 E/V 0.4

B_e 1.9 D/V 0.6
B_d 0.23
equ 16.2 Cutoff 0.181579

Project A B C D E
Inv 101 47 82 31 78
NPV 19 7 9 16 17
R 0.188119 0.148936 0.109756 0.516129 0.217949
16.20 Strategi Prob Payoff Expected
a) A 100% 90 90
B 0.5 160 80
0.5 0
C 0.1 370 55
0.9 20

b) Debt 35
E(a) 55
b 62.5
E© 33.5

c) Debt 130
e(a) 15
e(c) 24

16.21 Strategi A B C D
Prob of succ 93% 77% 61% 45%
Firm value if s 55 63 71 79
a) Expected payoff 51.15 48.51 43.31 35.55

b) i) no debt 51.15
ii) 16 mio debt 36.27 36.19 33.55 28.35
iii) 32 mio 21.39 23.87 23.79 21.15

Agency cost 15.6

16.22 Debt 32

a) Value of equity 23.87

Value of firm 48.51

b) Debt 4
Value of equity 47.43 45.43 40.87 33.75
Value of firm 51.15

c) Demand 93% of FV
d) Raise 26.04
e) Payoff_e 21.39
Payoff_d 32

16.25, 16.31*, 16.32, and 16.33.

16.25 EBIT 1000

Interest 0
Income before ta 1000
Taxes 300
 Net income 700

Inv 250
Income waste 10%

a) Tax shield, bad investment reduction

b) 0.63
c) To debt inv 1
To equity inv 0.37
Increase 0.37

16.31 shares 50
P good 9
P bad 7
P_ today 8
Cost of borrow 30
a)
i) Correct value 7
Cost per share 0.6
Shares if equi 56.25

16.35 Inv 45
EBIT 15
E 600
D 250
E/V 0.705882
D/V 0.294118
Shares 10
R_u 10%
R_d 4%
T 40%
R_e 12.5%
WACC_pre tax 10%
WACC 0.095294

a) NPV 49.44444
pected wages
me quarter GM lost a staggering $15.5
ars of government aid and ultimately
GM was worth only a little more than a
iven how close the company was to

y of a government bailout should the firm

e probability of receiving government

led to, the payment of a dividend could
17.19 Div 1
Stock drop 0.84
T_cg 18%
T_d 31%
t* 0.16

17.21 Cash 43
Shares 11
R_f 10%

a) Invest in risk free assets, earn interest og 0,39 per year

b) Borrow 4,3

17.25
a) T_div 15%
Receive 3.3235

17.26 Cash 97
R_d 8%
a) T_corp 38%
Add cash 4.8112

b) T_cg 18%
Share incr 3.945184

c) T_int 28%
Add cash 5.5872

d) EV 400
Cash 100
Shares 10
EV_good 600
EV_bad 200

a) Share price 50
b) Shares 8
Price_good 75
Price_bad 25

c) Share price 70
P_bad 30

d) If good, repurchase before news when stock is undervalued

If bad, repurchase after
e)
18: 18.1, 18.5, 18.6*, 18.8, 18.10*, 18.11*, 18.18, and 18.19.

18.5 FCF 1.69

g 2.60%
R_e 8.50%
R_d 7.10%
T 33%
D/E 2.40
D/V 0.7058823529
E/V 0.2941176471
WACC 0.0585788235
Value 51.874187491

18.6 R_e 9.40%

Market cap 9.49
EV 13
R_d 7.10%
T 35%

a) E/V 0.73
D/V 0.27
Wacc 0.0810805
b) Year 0 1 2 3
FCF -100 52 100 65
PV -100 48.1000259 85.562592 51.44454
NPV 85.1072
c) D/V ratio 0.27
V_lev 185.10715391 148.115735 60.1250323 0
D=d*VL 49.978931556 39.9912483 16.2337587 0

18.8 R_e 8.50%

R_d 7.10%
T 33%
D/E 2.4
D/V 0.7058823529
E/V 0.2941176471

a) WACC 0.0585788235
b) WACC_unl 0.0751176471

18.10
a) WACC_unlev 0.08779
b) Year 0 1 2 3
FCF -100 52 100 65
PV -100 47.8033444 84.5103452 50.49846
NPV 82.81
Interest 3.54850414 2.83937863 1.152597
Tax shield 1.24197645 0.99378252 0.403409
 PV TS 1.14174284 0.83984904 0.313408
Value APV 85.1072

18.11
a) Increase in financi 49.978931556 -9.9876832 -23.75749 -16.23376
FCFE -50.02 39.71 74.40 48.02
Pv -50.02106844 36.2941399 62.1613273 36.67276
Sum PV 85.107153913

18.18 Year 0 1 2 3 4
Ebit 10.1 10.4 10.3 9.7
Interest -4 -4 -3 -2
EBT 6.1 6.4 7.3 7.7
Taxes -2.501 -2.624 -2.993 -3.157
Dep 25 25 25 25
Capex -100
Change in NWC -20 20
Net new debt 80 -20 -20 -40
FCFE -40 28.60 8.78 9.31 9.54
PV -40 25.7648649 7.12279847 6.805198 6.28627
NPV 5.979131211

a) Interest 5%
Tax 41%
DE 0.2
R_e 11%
Interest TS 1.64 1.64 1.23 0.82
PV TS 1.56190476 1.48752834 1.06252 0.674616
Sum PV 4.7865693821

b) FCF -120 30.959 31.136 31.077 50.723

c) Wacc 0.1
PV FCF -120 28.1445455 25.7322314 23.34861 34.64449
Sum PV -8.130121576
Sum APV -3.343552194

18.19 Inv 597

EBITDA 141
n 10
Salvage 297
WC 50
T 35%
R_f 4.70%
R_m 10.90%
B_u 1.72

a) R_u 0.15364
 Year 0 1 2 3 4 5
EBITDA 141 141 141 141 141
Dep -59.7 -59.7 -59.7 -59.7 -59.7
Tax -28.455 -28.455 -28.455 -28.455 -28.455
Net profit 52.845 52.845 52.845 52.845 52.845
WC 50
Dep 59.7 59.7 59.7 59.7 59.7
FCF -647 112.545 112.545 112.545 112.545 112.545
PV FCF -647 97.5564301 84.5640148 73.30191 63.53967 55.07756
Sum PV -31.70264542

b) Debt 478
n 10
R_d 9.30%

Interest 44.454 44.454 44.454 44.454 44.454 44.454

Tax shield 15.5589 15.5589 15.5589 15.5589 15.5589
PV tax shield 14.2350412 13.0238254 11.91567 10.9018 9.9742
Sum PV 98.546577574
APV 66.843932155

98.5465776

Ex 18.11 FCF 7.36

g 4%
Debt 30
Adjusting debt to maintain constant D/E
R_d 5%
T 40%
R_u 12%

V_u 92
Int TS_0 0.6
g 4% d=D/V
PV_Int TS 8 k=Int/FCF

V_L 100
V_L 100
R_wacc 0.1136
V 100

Ex 18.12 FCF 4.5

R_u 7%
D 30
T 35%

using APV V_u+PV(TS)

verify by wacc
 V_u 64.285714286
PV Int TS 10.5
V_l 74.785714286
Ds= D - Ts
R_wacc 6% Ts = PV Tax shields
V_l 74.785714286

R_u 8%
R_d 6%
T 40%
Unlevered value 0 1 2 3 4
1 FCF -28 18 18 18 18
2 V_u 59.62 46.39 32.10 16.67 0.00
Interest TS
3 Debt Sched., DT 30.62 20 10 0 0
4 Interest paid 1.8372 1.2 0.6 0
5 Interest TS 0.73488 0.48 0.24 0
6 V_TS 1.32 0.67 0.23 0.00 0.00
APV
7 Levered Value 60.94 47.05 32.33 16.67 0.00
Effective leverage and cost of cap
8E 30.32 27.05 22.33 16.67 0.00
9 Effective D 29.30 19.33 9.77 0.00 0.00
10 Eff. D/E 0.9662845056 0.71462429 0.43778302 0
11 R_e 9.93% 9.43% 8.88% 8.00%
12 Wacc 6.75% 6.95% 7.24% 8.00%

V_l 17.849225387 47.0541751 32.3251805 16.66667

20. Invest 150
FCF 20
R_e 10%

a) NPV 50

b) Issuance costs 8%
NPV 38

c) PV(Issuanse sav) 9.83 kr.

NPV 47.83 kr.

21. MV 155
Shares 4
T 25%
Issuance costs 1%

Debt amount 0 10 20 30 40 50
PV of D/A costs 0 -0.16 -1.81 -3.52 -7.41 -11.46
MV 155 167.24 177.99 188.68 197.19 205.54
Equity 155 157.24 157.99 158.68 157.19 155.54
Share price 38.75 39.31 39.4975 39.67 39.2975 38.885

18.22 Investment 120

FCF 20
R_u 8%
Debt 72
T 35%

a) V_u 130
V_TS 25.2
V_l 155.2

b) Debt Iss. fee 4%

E iss. Fee 7%
Current share pric 39
Actual P 43

Debt 72
Iss fee 2.88
Equity 48
Iss fee 3.36
TS 25.2
Capital gains 4.92
V_l 144.04

18.24 R_u 8.5%

 T 37%
R_d 4.80%
D/E 0.5
E/V 0.6666666667
D/V 0.3333333333

a) r_e 0.1035
WACC 0.07908

b) d 0.3333333333
ol 0.0458015267
Wacc 7.89% d=D/V
Wacc 7.89% k=Int/FCF

c) FCF 10.2
g -2.20%

V_a 100.91017016
V_b 101.11925897

18.25 FCF 11.2

Debt 35
T 37%
R_u 4.80%

a) V_u 233.33333333
V_ts 12.95
V_l 246.28333333
E 211.28333333

b) Wacc 4.55% Ds= D - Ts

V_l 246.28333333 Ts = PV Tax shields
E 211.28333333

c) R_d 4.60%
Ds 22.05
R_e 4.82%

d) FCFE 10.1857
E 211.28333333

18.26 Inv 50.2

R_d 7.70%
T 35%
R_u 12.20%

Year 0 1 2 3
FCF -50.2 38.3 18.5 24.5
 Debt 50.2 29.3 15.1 0
V_u 66.18 35.95 21.84 0
a) Interest 3.87 2.26 1.16
Tax shield 1.35 0.79 0.41
V_TS 2.26 1.08 0.38
V_l 68.44 37.03 22.21 0
D/V 0.73 0.79 0.68
b) E/V 0.27 0.21 0.32
T_s 2.26 1.08 0.38 0
Wacc 10.07% 9.94% 10.29% #DIV/0!

c) NPV 68.44 37.03 22.21

28.22
d) D_s 47.94 28.5668199 14.7221495
R_e 24.03% 28.62% 21.51%
Equity
Wacc 10.07% 9.94% 10.29%

e) FCFE = FCF – After-tax Interest + Net new debt =

FCFE 0.00 14.89 2.83 8.64

E 18.239235594 7.73411174 7.11385764
E(a) 18.239235594 7.73411174 7.11385764
E©

18.27 R_e 10.80%

E 97
FCF g 2.90%
T_corp 36%
T_i 38%
T_equity inc 19%

a) Adds debt 49
T* 0.1638709677
FCF 7.663
V_u 97
T**D 8.0296774194
V_l 105.02967742

b) D/V 0.5
R_d 7.24%
R_D 5.54%
R_e 16.06%
Wacc 10.35%
V_l 102.91520372

18.28 R_e 12.60%

 R_d 6.30%
D/E 0.5
T 34%
D/V 0.3333333333
E/V 0.6666666667

a) R_u 0.105
Wacc 0.09786

b) D/E 2
R_d 6.30%
D/V 0.6666666667
E/V 0.3333333333
R_e 18.90%
Wacc 9.07%

c) T_i 32%
T_e 13%
T* 15.56%
R_d* 4.92%
R_e 21.65%
Wacc 9.99%
 6 7 8 9 10
141 141 141 141 141
-59.7 -59.7 -59.7 -59.7 -59.7
-28.455 -28.455 -28.455 -28.455
-28.455
52.845 52.845 52.845 52.84552.845
-50
59.7 59.7 59.7 59.7 59.7
112.545 112.545 112.545 112.545 355.595
47.74241 41.38415 35.87267 31.09521 85.16332

44.454 44.454 44.454 44.454 44.454

15.5589 15.5589 15.5589 15.5589 15.5589
9.125526 8.349063 7.638667 6.988717 6.394068
Ts = PV Tax shields
Ts = PV Tax shields
Shares 318.41
Market value 134220
Issue 96000 Senior debt

Equivalent to 301.4981 Dollars per share of their assets

Average bid ask 149.15
Market value of equity 47490.85
Value of debt 86729.15
Yield 7.01%

Total debt 122000

Equivalent to 383.1538 Dollars per share of their assets
Average bid ask 96.9
Market value of equity 30853.93

Equity 30853.93
Value of senior loan 86729.15
Value of junior loan 16636.92
Total value 134220
Yield_junior loan 0.346688
 21.1, 21.2, 21.6*, 21.8, 21.9*, 21.10*, 21.14, 21.15, 21.18*, 21.21, 21.23*, 21.24, 21.25, 21.26, 21.27*, 21.28*, and 21.29*.
K 6
Sigma 65%
R_f 1%
July 24
S 5.03 7/24/2009
T 12/19/2009
148.00
d1 -0.209342
d2 -0.623245
C 0.505034 -0.2094068
5.975840841

21.1 Stock S 60
Either up 20%
Or down 10%
Exercise K 60
S up 72
S down 54.00
Cu 0
C down 6.00
Delta -0.333333 Meaning portfolio short 0,33 stocks
R_f 3%
B 23.30097 Meaning invested 23,3 in risk free bond
C 3.300971

Period 2 Stock S 50
Either up 20%
Or down 10%
Exercise K 60
S up 60
S down 45.00
Cu 0
C down 15.00
Delta -1
R_f 3%
B 58.25243
C 13.25243

Delta -0.66343
B 41.85126
C 8.679737

1. Stock S 25
Either up 24%
Or down 24%
Exercise K 25
R_f 8%
 S up 31
S down 19
Cu 6
C down 0
Delta 0.5
B -8.796296
C 3.703704

2. Stock S 25
Either up 24%
Or down 24%
Exercise K 25
R_f 8%
S up 31
S down 19
Cu 0
C down 6
Delta -0.5
B 14.35185 Endre
C 1.851852 Sjekk at det stemmer ift oppgaven

3. Time 0 If up at 1 If Down at 1
S_0 5.65 Stock S 8.15 Stock S 3.65
Either up 2.5 Either up 2.5 Either up 2.5
Or down 2 Or down 2 Or down 2
S_1 8.15 Exercise K 7 Exercise K 7
S_2 3.65 R_f 3.20% R_f 3.20%
C up 1.776899 S up 10.65 S up 6.15
C down 0 S down 6.15 S down 1.65
Delta 0.394866 Cu 3.65 Cu 0
B -1.396572 C down 0 C down 0
C 0.834423 Delta 0.81111111 Delta 0
B -4.8336563 B 0
C 1.77689922 C 0

4. Time 0 If up at 1 If Down at 1
S_0 5.65 Stock S 8.15 Stock S 3.65
Either up 2.5 Either up 2.5 Either up 2.5
Or down 2 Or down 2 Or down 2
S_1 8.15 Exercise K 7 Exercise K 7
S_2 3.65 R_f 3.20% R_f 3.20%
P_up 0.409845 S up 10.65 S up 6.15
P_down 3.132946 S down 6.15 S down 1.65
Delta -0.605134 Pu 0 Pu 0.85
B 5.176049 P down 0.85 P down 5.35
P 1.757045 Delta -0.1888889 Delta -1
B 1.94928941 B 6.782945736
 P 0.40984496 P 3.132945736

21.5 Stock S 60
Either up 20%
Or down 10%
Exercise K 60
S up 72
S down 54.00
P_up 0
P_down 6.00
Delta -0.333333 Meaning portfolio short 0,33 stocks
R_f 3%
B 23.30097 Meaning invested 23,3 in risk free bond
P 3.300971

If actually valued at 8 dollars, sell it and buy replicating portfolio

Meaning short 0,33 shares of stocks and invest 23,3 in the risk free bond
Earn upfront: 4.699029
If stock up: 0 (Put = 0, shorted shares=D*S_up, T-bills worth B*(1+r_f)
If stock down: 0

21.6 S_0 50 S_up 60 S_down 45

Delta -0.66343 Delta -0.3333333 Delta -1
B 41.85126 B 23.3009709 B 58.25242718
P 8.679737
Actually sells for 5
At t=0 Buy $5 put, sell replicating portfolio - meaning long 0,6634 shares og stock and borrow 41,85
Will have 3.679737
Rebalance at t=1
If up:
Reduce stock holdings to 0,3333 shares, reduce debt to 23,3
If up at t=2 we have 0
If down at 2 we have 0

If down:
Increase stock holdings to 1 share, increase debt to 58,25
If up at t=2 we have 0
If down at 2 we have 0

Thus profit of 3,68 upfront with zero payoff no matter what happens in future

21.7
a) If up at 1 b) If up at 1
Stock S 10 Stock S 10
Either up 102% Either up 102%
Or down -56% Or down -56%
Exercise K 10 Exercise K 20
R_f 25.00% R_f 25.00%
S up 20.2 S up 20.2
S down 4.4 S down 4.4
Pu 0 Pu 0
P down 5.6 P down 15.6
Delta -0.35443 Delta -0.987342
B 5.727595 B 15.95544
P 2.183291 P 6.082025

21.9 MV 1340
Good MV 1876
Bad MV 1206
r_f 5%
ZC FV 1407

a) Good PO 1407
Bad PO 1206

b) Delta 0.3
B 804
Value of debt 1206

c) Yield 0.166667

d) Value of equity 134

Same value as before

e) Equity 134
Good payoff 469
Bad payoff 0
Delta 0.7
B -804
Equity 134

21.10 Bankruptcy 90

a) Delta -0.134328
B 240
Value of BC 60

b) Value of debt 1146

1/19/2014
21.14 R_f 0.25% 9/10/2012
Vol_sep12 26.6% 496
BidP_700j14 87.6
S 700.77
K 700
C 87.6
T 1.358904
PV(K) 697.6289
Sigma*sqT 0.309615
d1 0.169317
d2 -0.140298
C 87.6

21.15 R_f 0.0025

Vol_sep12 0.2656
S 700.77
K 800
T 1.358904
PV(K) 797.2902
Sigma*sqT 0.309615
d1 -0.261964
d2 -0.57158
C 51.70394

21.11 R_f 5%
Sigma 30%
S 60
K 60
T 1
PV(K) 57.14286
Sigma*sqT 0.3
d1 0.312634
d2 0.012634
C 8.503803

21.18
a) R_f 5% b) R_f 5% c) R_f 6%
Sigma 30% Sigma 31% Sigma 30%
S 61 S 60 S 60
K 60 K 60 K 60
T 1 T 1 T 1
PV(K) 57.14286 PV(K) 57.1428571 PV(K) 56.60377358
Sigma*sqT 0.3 Sigma*sqT 0.31 Sigma*sqT 0.3
d1 0.367732 d1 0.31238763 d1 0.344229694
d2 0.067732 d2 0.00238763 d2 0.044229694
C 9.136956 C 8.73176289 C 8.779453215

21. Stock S 25
 Either up 20%
Or down 20%
Exercise K 25
R_f 6%
p 0.65
1-p 0.35
S up 30
S down 20
Cu 5
C down 0
Delta 0.5
B -9.433962
C 3.066038

3. C 3.066038

Time 0 If up at 1 If Down at 1
S_0 6 Stock S 8.5 Stock S 4
Either up 2.5 Either up 2.5 Either up 2.5
Or down 2 Or down 2 Or down 2
p 0.48 Exercise K 7 Exercise K 7
1-p 0.52 R_f 3.00% R_f 3.00%
S_1 8.5 p 0.501 p 0.471
S_2 4 1-p 0.499 1-p 0.529
C up 1.946063 S up 11 S up 6.5
C down 0 S down 6.5 S down 2
Delta 0.432458 Cu 4 Cu 0
B -1.67945 C down 0 C down 0
C 0.9153 Delta 0.88888889 Delta 0
B -5.609493 B 0
0.9153 C 1.94606257 C 0

1.94606257 0

Actual probabilities are the probabilities with which an event will happen. Risk-neutral
21.23 probabilities are the probabilities of an event happening in a world where investors are risk-
neutral. Thus, risk-neutral probabilities are a construction and do not reflect reality. Assuming that
investors are risk-averse, risk-neutral probabilities are lower in good states and larger in bad states.
This has to be the case because if investors were risk-neutral, then the expected returns are the
risk-free rate, whereas risk-averse demand higher returns. And given the same payoffs, a higher
expected return implies good states are more likely.

21.24
Risk neutral probabilities can be used to price derivative securities because the pricing of
derivatives only depends on the characteristics of the underlying asset. By construction, the value
of the underlying asset can be calculated using risk-neutral probabilities and therefore the value of
the call will depend on these probabilities. Risk-neutral probabilities are the easiest probabilities
to work with, given that they simplify the calculations, and that is why we use them.
 derivatives only depends on the characteristics of the underlying asset. By construction, the value
of the underlying asset can be calculated using risk-neutral probabilities and therefore the value of
the call will depend on these probabilities. Risk-neutral probabilities are the easiest probabilities
to work with, given that they simplify the calculations, and that is why we use them.

21.25 R_f 1.29% R_f 5%

Sgima 64.70% Sigma 30%
S 5.03 S 61
K 9 K 60 BETA 0.86
T 0.479452 T 1 Bid 0.05
PV(K) 8.944861 PV(K) 57.1428571 Ask 0.15
Sigma*sqT 0.447999 Sigma*sqT 0.3 Average 0.1
d1 -1.060958 d1 0.36773155
d2 -1.508956 d2 0.06773155
C 0.138829 C 9.13695615

Beta 4.3258
Leverage ratio 5.03

21.26 March 2010 5 7/24/2009

1/15/2010
R_f 1.29% Beta 0.86 175
Sgima 64.70%
S 5.03
K 5
T 0.652055
PV(K) 4.958386
Sigma*sqT 0.522452
d1 0.288673
d2 -0.233779
P 0.993784

Delta -0.386416
B 2.937455
Leverage ratio -1.95583

b) B__put -1.682013

c) Risk premium 6%
E_r -0.088021

d) To hedge against negative returns. Negative beta means moving against market
Good returns when bad economy

21.27 ZC debt T 16 months

FV 163500
MV 229200
R_f 0.25%
Shares 327
 P 700.77

a) Beta 1.2
R_f 0.25%
Sigma 26.6%
S 229.2
K 163.5
T 1.333333
PV(K) 162.9566
Sigma*sqT 0.306689
d1 1.265584
d2 0.958895
C 70.18254

Delta 0.897169
B -135.4486
Leverage ratio 2.929947

Beta_debt 3.515936

b) Beta_newD 0.402987

21.28 Equity 365.45

Beta 1.2
ZC T 4
FV 200
MV_d 134.54
4 year r_f 5.13%

R_f 5.13%
Sigma 60%
S 499.99 Equity+MV of debt
K 200 FV of debt
T 4
PV(K) 163.7281
Sigma*sqT 1.199962 0.486546752 200
d1 1.530328 134.54
d2 0.330365
C 365.45

Delta 0.937032
B -103.0567
B_u 0.936038
B_d 0.147348

21.29 Sharesq 26
P 18 468
ZC debt T 5
FV 890 552.62
Yield 10% 1020.62
R_f 5%

R_f 5%
Sigma 48%
S 943.5416
K 890
T 5
PV(K) 697.3383
Sigma*sqT 1.065425
d1 0.816515
d2 -0.24891
C 468

Delta 0.792897
B -280.1314
Prof idex 0.261198
Meaning a $1 investment by equity holders with an NPV of $0.236 will increase assets by $1.236, and so increas
27*, 21.28*, and 21.29*.

P = Put option price

Strike = exercise = K
Stock price = S
C = Call price
orrow 41,85
d) R_f 5% e) R_f 5%
Sigma 30% Sigma 30%
S 60 S 59
K 60 K 60
T 0.916667 T 1
PV(K) 57.37566 PV(K) 57.14286
Sigma*sqT 0.287228 Sigma*sqT 0.3
d1 0.299324 d1 0.25661
d2 0.012096 d2 -0.04339
C 8.09452 C 7.891754
utral
s are risk-
y. Assuming that
ger in bad states.
turns are the
offs, a higher

g of
on, the value 7/24/2009
e the value of 3/19/2010
robabilities
238
on, the value
e the value of
robabilities

Call
y $1.236, and so increase equity by around 0.81* 1.236 = $1
 22.3*, 22.6*, 22.7, 22.9*, 22.10*, 22.11, 22.14*, 22.15*, 22.16, 22.17*, 22.18, and 2

22.6 Inv 35.2

Value 40.4
Beta 1.1
Sigma 25%
FCF 20% of value
R_f 4.10%

R_f 4%
Sigma 25%
S 32.32
K 35.2
T 1
PV(K) 33.8136407
Sigma*sqT 0.25
d1 -0.05571224
d2 -0.30571224
C 2.59582444 =Value of waiting
Value now 5.2
Enter today

b) Inv 35.2

Value 35.6
Beta 1.1
Sigma 25%
FCF 20%
R_f 4.10%

R_f 4%
Sigma 25%
S 28.48
K 35.2
T 1
PV(K) 33.8136407
Sigma*sqT 0.25
d1 -0.56164883
d2 -0.81164883
C 1.12879102 =Value of waiting
Value now 0.4
They should wait

22.7
Date_1 9/1/2017
Price 1800
Prob 70%
 Prob of cancel 30%
Date_2 1/1/2018
Price 5400
Value 6500
Cost of cap 13%

Value_1 2568.36161
Value_2 1056.08742

22.8 Life 17 years

Inv 100
Profit 11.5
growth_1-5 10.10% 5.10%
Prob of growth 20% 80%
Growth_5-17 -2%
r_f 10.10%

Year 0 1 2 3 4 5
FCF -100 12.2015 12.94579 13.73548 14.57335 15.46232
PV(FCF -100 11.0822 10.67958 10.29158 9.91768 9.557365
Sum PV 9.79065756

FCF_high -100 12.6615 13.94031 15.34828 16.89846 18.6052

PV FCF -100 11.5 11.5 11.5 11.5 11.5
Sum PV 27.6046785

FCF_low -100 12.0865 12.70291 13.35076 14.03165 14.74726

PV FCF -100 10.97775 10.47921 10.00332 9.549034 9.115381
Sum PV 5.69259182
NPV 10.0750092

22.9 Current V 5.2

FCF_1 0.52
Cost of cap 12%

22.11 Investing 20% of earnings in growth

Return 12% 15%
Prob 50% 50%
Earnings 12.00
Cost of cap 13.10%

Inv 2.40
Old div 9.60
NPV_high -218.181818

22.14 Change of prod prop 67%

Inv 10.1
Profit 1.06
 Growth rates: 1 3.20% 0.333333
2 0% 0.333333
3 -3.20% 0.333333
Cost of capital 11.6%

NPV_1 2.51904762
NPV_2 -0.96206897
NPV_3 -2.93783784
EV 0.83968254
EV per year 0.56006825
PV 4.8281746

22.16 Shares 1.00

P 24.53
Can sell at same price in 1 year
R_f 5.75%
Sigma 29.30%

R_f 5.75%
Sgima 29.30%
S 24.53
K 24.53
T 1
PV(K) 23.1962175
Sigma*sqT 0.293
d1 0.33731103
d2 0.04431103
P 2.16259256

Value of offer 26.69

22.17 Revenue 1
Bad state -9.60%
Good state 4.80%
Costs 0.88
Can sell for 0.51
Cost of cap 9.60%

Profit_bad 0.024
NPV_bad 0.25 Should shut down because < 0,51

Profit_good 0.168
NPV_good 1.75
EV 1.0310219

22.18 P/pound 1.54

Pounds 1
Costs 2
 Enough copper for 100 years
Cost of shutting down 4.92
Change 25%
for 2 years
Cost of cap 15.20%

2.40625
1.925
1.54 1.44375
1.155
0.86625
Year 2
Profit_up+up 0.40625
NPV 2.67269016

Profit_up_down -0.55625
NPV -3.65954067

Profit_down_down -1.13375
NPV -7.45887917

Year 1
Profit_up -0.075
NPV_up -0.4934247

Profit_down -0.845
NPV_down -4.45726592

EV -2.47534531 > -4.92

So operate

22.19
22.15*, 22.16, 22.17*, 22.18, and 22.19.
 6 7 8 9 10 11 12 13 14 15
15.15308 14.85002 14.55302 14.26196 13.97672 13.69718 13.42324 13.15477 12.89168 12.63384
8.50701 7.572088 6.739915 5.999198 5.339886 4.753032 4.230673 3.765722 3.351869 2.983498

18.2331 17.86844 17.51107 17.16085 16.81763 16.48128 16.15165 15.82862 15.51205 15.20181
10.23615 9.111195 8.109874 7.218598 6.425274 5.719135 5.090602 4.531144 4.033171 3.589925

14.45232 14.16327 13.88001 13.60241 13.33036 13.06375 12.80248 12.54643 12.2955 12.04959
8.1136 7.221914 6.428225 5.721763 5.092941 4.533226 4.035024 3.591574 3.19686 2.845525
 16 17
12.38117 12.13354
2.655611 2.363759

14.89777 14.59981
3.195392 2.844218

11.8086 11.57242
2.532801 2.254446
23.4*, 23.5*, 23.9, 23.11*, 23.12*, 23.13*, 23.16*, and 23.20*.
23.3 Initial inv 1000000
Shares 12

a) Value 2.63157894736842
Shares 19.3548387096774
Shares for 1 mio 7.35483870967742
P 0.1359649122807

b) Post money V 2.63157894736842

23.4 Capital 50
Lifespan 12
Yearly fee 1.50%
Invested 41
Value_12 550
Interest fee 30% of profits

a) 0 1 2 3 4 5 6
-41 0 0 0 0 0 0
IRR 24.16%

b) 0 1 2 3 4 5 6
-41 0 0 0 0 0 0
19.74%

23.5 Round Price Shares

A 0.02 5500000
B 0.8 1100000
C 2.5 700000
D 7 500000

a) Pre-money valuati 51,100,000

b) Post-money valuat 54,600,000
c) Percentage owned 0.70512820512821

23.6 round Pre money Post moneMoney rais%share CS Distr. Of ownership

A 8 12 4 0.666667 0.138889
B 25 40 15 0.416667 0.25
C 100 150 50 0.277778 0.333333

23.7 Raised 5
Pre money V 9
seeking to raise 6

Post money V_1 14

Post money V_2 20
 must offer at least 30%

23.8 Raised A 10 0.166667

Post money V 40
Liquidation pref 1.5
Raised B 25 0.333333
Post money V 75
Liquidation pref 3 plus seniority

a) Sold for 85
B 75
A 10

b) Sold for 100

B 75
A 15
Common 10

c) Sold for 200

B 75
A 31.25
Common 93.75

d) Sold for 300

B 100
A 50
Common 150

23.11 Price Shares Shares cum.

14.8 160000 160000
14.6 260000 420000
14.4 500000 920000
14.2 1000000 1920000
14 1200000 3120000
13.8 880000 4000000
13.6 420000 4420000

23.12 Round Date Investor Shares Price Ownership

A Feb-09 You 600000 1 1
B Aug-10 Angels 1200000 2.5 0.333333
C Sep-11 VC 2000000 3.25 0.157895
D 2012.00 IPO 6000000 12.86 0.061224
PE 18.00
E 7.00
P 126000000.00

23.16 Shares 12.00

New shares 4.00
 P 16.00
Fee 8%

a) Raised 58.88
b) MV 880

23.17 Share request 1050

P_very S 10% 50
Appeciate 102%
P_S 84% 240
Appeciate 13%
P_f 6% 1050
Appeciate -13%

a) Average appr. 20.34%

b) Average IPO P 14.00
E_r 4,098.05

23.20 Shares 11
P 42
Rights per share 5

a) Will raise 92.4

b) Shares outstanding 13.2
Share price 42

Right per share 1

Share price 6
c) Will raise 66
d) Share price after is 24
7 8 9 10 11 12
0 0 0 0 0 550

7 8 9 10 11 12
0 0 0 0 0 356.3
Lessor = owner
Lessee = tennant
1. Cost 300000
Residual MV 75000
Years 4
R_F 6.10%

a) Months 48
Monthly R_f 0.01
PV (lease) 241202.10
Monthly lease 5647.00
PV (lease) 241202.1

b) Cost 300000
Monthly payment 7059.27

25.2 R_f 5.70%

Monthly R_f 0.00475
Cost 2800000.00
T 5.00
T_monthly 60.00
Monthly payment 48000.00
Residual value 287289.11
FV of residual 381768.46280688

25.3 Years 6
Months 72
Cost 350000
Residual MV 122500
R_f 5.90%
Monthly R_f 0.0049166666667

a) PV(Lease) 263945.70467965
Monthly payment 4340.55
PV Lease 263945.7

b) Cost 350000
Monthly lease 5755.70

c) Cost 314875.79782843
Cost 314875.8
Monthly lease 5178.09

25.4 Assets Liabilities

Cash 17 Debt 73
 PPE 162 Equity 106
179 179
D/E 0.69
a) Capital lease
Assets Liabilities
Cash 17 Debt 152
PPE 241 Equity 106
258 258

D/E 1.43

b) No change, Expenses the lease payments

25.6 Cost 752000

Life 7
Payments 131000.00
T 35%

a) Delta FCF_0 -752000

Delta FCF_1-7 37600

b) FCF_0-6 -85150
c) FCF_0 666850
FCF_1-6 -122750
FCF_7 -37600

25.7 Cost 290000

Life 5
annual lease pmt 66152
R_d 7%
R_d after tax 0.0455
T 35%

Buy
Year 0 1 2 3 4 5
Cost -290000
Dep tax shiel 20300 20300 20300 20300 20300
FCF -290000 20300 20300 20300 20300 20300
PV FCF -290000 19416.547 18571.542 17763.311 16990.255 16250.84
Sum PV -201007.5035532
Lease
Year 0 1 2 3 4 5
Cost -66152 -66152 -66152 -66152 -66152
Tax shield 23153.2 23153.2 23153.2 23153.2 23153.2
FCF -42998.8 -42998.8 -42998.8 -42998.8 -42998.8
 PV FCF -42998.8 -41127.5 -39337.64 -37625.67 -35988.21
Sum PV -197077.8086958

Lease vs buy 247001.2 -60544.05 -57909.18 -55388.98 -52978.46 -16250.84

NPV 3929.6948574169
Lease is more attractive

27.8 Cost 4250000

Life 5
Yearly lease pmt 972000
R_d 6.60%
T 35%
R_d at 0.0429

a) Buy
Year 0 1 2 3 4 5
Cost -4250000
Dep tax shiel 297500 297500 297500 297500 297500
FCF -4250000 297500 297500 297500 297500 297500
PV FCF -4250000 285262.25 273527.9 262276.25 251487.44 241142.4
Sum PV - 2,936,303.73
Lease
Year 0 1 2 3 4 5
Cost -972000 -972000 -972000 -972000 -972000
Tax shield 340200 340200 340200 340200 340200
FCF -631800 -631800 -631800 -631800 -631800
PV FCF -631800 -605810.7 -580890.5 -556995.4 -534083.2
Sum PV - 2,909,579.89

Lease vs buy 3618200 -891073 -854418.4 -819271.7 -785570.7 -241142

NPV 26723.83342884
Lease more attactive

b) Buy
Year 0 1 2 3 4 5
Cost -4250000
Dep tax shiel 297500 476000 285600 171360 171360 85680
FCF -3952500 476000 285600 171360 171360 85680
PV FCF -3952500 456419.6 262586.79 151071.12 144856.77 69449.02
Sum PV - 2,868,116.71

Lease vs buy 3320700 -1062230 -843477.3 -708066.5 -678940 -69449

NPV - 41,463.18
Buy is more attactive
25.9 Cost 19
Life 5
Maintenacne 2 per year
annual lease pmt 4.3
R_d 7.50%
T 40%
R_D at 0.045

a) Buy
Year 0 1 2 3 4 5
Cost -19 -2 -2 -2 -2 -2
Dep tax shiel 2.32 2.32 2.32 2.32 2.32
FCF -19 0.32 0.32 0.32 0.32 0.32
PV FCF -19 0.3068367 0.2942149 0.2821123 0.2705075 0.25938
Sum PV - 17.59
Lease
Year 0 1 2 3 4 5
Cost -4.3 -4.3 -4.3 -4.3 -4.3
Tax shield 1.72 1.72 1.72 1.72 1.72
FCF -2.58 -2.58 -2.58 -2.58 -2.58
PV FCF -2.58 -2.4689 -2.362583 -2.260845 -2.163488
Sum PV - 11.84

Lease vs buy 16.42 -2.775736 -2.656798 -2.542958 -2.433996 -0.25938

NPV 5.7511322457416
Lease more attactive

Buy
Year 0 1 2 3 4 5
Cost -19 -2 -2 -2 -2 -2
Dep tax shiel 2.32 2.32 2.32 2.32 2.32
FCF -19 0.32 0.32 0.32 0.32 0.32
PV FCF -19 0.3068367 0.2942149 0.2821123 0.2705075 0.25938
Sum PV - 17.59
Lease
Year 0 1 2 3 4 5
Cost -6.39 -6.39 -6.39 -6.39 -6.39
Tax shield 2.56 2.56 2.56 2.56 2.56
FCF -3.83 -3.83 -3.83 -3.83 -3.83
PV FCF -3.83 -3.67 -3.51 -3.36 -3.21
Sum PV - 17.59

Lease vs buy 15.17 -3.975397 -3.804799 -3.641523 -3.485255 -0.25938

NPV 0.00
 Break even lease rate -6.38940963838

25.10 Cost 48
Dep 20% 32% 19.20% 11.52% 11.52% 5.76%
Life 5
Lesse T 10% 0.072
R_d 8%
Lessor T 35% 0.052

a) Buy
Year 0 1 2 3 4 5
Cost -48
Dep tax shiel 3.36 5.376 3.2256 1.93536 1.93536 0.96768
FCF -44.64 5.376 3.2256 1.93536 1.93536 0.96768
PV FCF -44.64 5.1102662 2.9146005 1.6623197 1.5801518 0.751023
Sum PV - 32.62
Lease
Year 0 1 2 3 4 5
Cost -11.08 -11.08 -11.08 -11.08 -11.08
Tax shield 3.88 3.88 3.88 3.88 3.88
FCF -7.20 -7.20 -7.20 -7.20 -7.20
PV FCF -7.20 -6.85 -6.51 -6.19 -5.88
Sum PV - 32.62

Lease vs buy 37.44 -11.95625 -9.422193 -7.848244 -7.460308 -0.751023

NPV 0.00

Break even lease rate -11.07996716921

Buy
Year 0 1 2 3 4 5
Cost -48
Dep tax shiel 0.96 1.536 0.9216 0.55296 0.55296 0.27648
FCF -47.04 1.536 0.9216 0.55296 0.55296 0.27648
PV FCF -47.04 1.4328358 0.8019603 0.4488584 0.4187112 0.195294
Sum PV - 43.74
Lease
Year 0 1 2 3 4 5
Cost -11.08 -11.08 -11.08 -11.08 -11.08
Tax shield 1.11 1.11 1.11 1.11 1.11
FCF -9.97 -9.97 -9.97 -9.97 -9.97
PV FCF -9.97 -9.30 -8.68 -8.09 -7.55
Sum PV - 43.60
 Lease vs buy 37.07 -10.73505 -9.479396 -8.543481 -7.969665 -0.195294
NPV 0.145

25.11 Cost 221.7

Annual lease pmt 25
Purchasing prof 49.5
Leasing profits 35
Cost of cap 12.90%
Resale price 221.7

a) Buy 18.51
Lease 6.00

b) Risk neutral p 9.10%

Buy -3.346767050487
Lease 3.1798051372896

c) Risk neutral p 5.98%

Buy 4.147
Lease 4.147
Diff 0.000
Ex 28.2 EPS 5
Old world New world
shares 1 Shares 1
Price 60 Price 100

V_nw_post 160
Share ratio 0.6
New shares 1.6
EPS 6.25

Ex 28.3 P/E_pre 20
P/E post 16

Ex 28.4 Acquirerer 25 Target S 30

Synergies 12
Shares 1.033
Cost 30.99
Max cash offer 42.99
Stock swap 1.664666

Ex 28.5 P 40
Shares 20
Value increase 50%
Target 50% of shares
Equity 800
Possible V 1200
Max offer 60 per share

28.9 Acquirer
EPS 4
Shares 1.6
P 56
Target x new shares to pay for targe
EPS 1 N_T Target shares outstanding
Shares 1.3 P_T Price target
P 24 P_A Price aquirer
S Synergies
a) Value_A 89.6 T Premerget value of target
Value_T 31.2
A:T 0.428571
Shares_post 2.157143
Earnings_post 7.7
Eps 3.569536 7.7
Exchange ratio 0.428571
b) Offer 37.44
A:T 0.514286
Shares_post 2.268571
Earnings_post 7.7
Eps 3.394207

c) More shares
Original sharehodlers worse off
New share holders better off

d) P/E_post 15.68831
P/E_pre 14
P/E_T_pre 24

28.11 CEO owns 4%

Value destroyed 57
CEO compen. 5
CEO V decrease -2.28
Net comp 2.72
Better off

28.12 Premium 22%

Premerger P_T 42
PremergerP_A 53
Exchange ratio 0.966792

28.13 P_A 48
P_t 74
Value_T_pre 4.5 x
Synergies 1.48 N_T
Max exchange ratio 2.048704 P_T
P_A
28.15 Acquirer ABC S
ShareS 1 T
P 25

Target XYZ
Shares 1
P 2.59

a) Offer 4
P_XYZ 4
P_ABC 23.59
Premium 0.544402
b) Exchange ratio 0.16
Value_comb 27.59
Shares 1.16
P_ABC 23.78448
P_XYZ 3.805517
Premium 0.469312

28.16 P 30
Shares 2
Poison pill trigger 15%
if triggered 80% discount per share

a) New shares issued 1.7

At price 6

b) My ownership from 15%

to 0.081081

c) Old P 30
New P 18.97297

d) Old own value 9

New own value 5.691892
Value lost 3.308108
Loss goes to shareholders owning other 85%
Other shareholdesr 37.94595
Paid 36
Gained 1.945946 per share

28.18 P_t 24
Shares 2.25
Value increase 42%
Offer 30

a) Value of company 54
New value 76.68
Purchased 50% for 33.75 which is debt
New value of equity 42.93
P/share 19.08

b) They will tender

c) Gain (assuming 50%) 4.59

new shares to pay for target
Target shares outstanding
Price target
Price aquirer

Premerget value of target

new shares to pay for target
Target shares outstanding
Price target
Price aquirer
Synergies
Premerget value of target