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Income Based Valuation Unit Exam Answer Key New

The document presents a comparison of cash flows and dividends under Plan A and an Alternative for Years 1 and 2, showing that in Year 1 Plan A results in $110,000 of cash flow available to shareholders compared to $100,000 under the Alternative, but by Year 2 the Alternative provides higher dividends per share of $1,000 compared to $890 under Plan A. It also lists the stock price of $1,735.54 which could be calculated using a dividend discount model.

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2K views6 pages

Income Based Valuation Unit Exam Answer Key New

The document presents a comparison of cash flows and dividends under Plan A and an Alternative for Years 1 and 2, showing that in Year 1 Plan A results in $110,000 of cash flow available to shareholders compared to $100,000 under the Alternative, but by Year 2 the Alternative provides higher dividends per share of $1,000 compared to $890 under Plan A. It also lists the stock price of $1,735.54 which could be calculated using a dividend discount model.

Uploaded by

AMIKO OHYA
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Plan A Alternative

Year 1 Year 2 Year 1 Year 2


Cash Flow 100,000.00 100,000.00 100,000.00 100,000.00
New Shares 10,000.00
CF available to SH 110,000.00 100,000.00 100,000.00 100,000.00
To New Shares
Dividends 11,000.00
DPS 110.00
To Old Shares
Dividends 110,000.00 89,000.00 100,000.00 100,000.00
DPS 1,100.00 890.00 1,000.00 1,000.00

Stock price* 1,735.54 1,735.54

*Use dividend discount model formula


Part I. Lecture Part II. Laboratory
Test 1 Problem 1
1 a Cash Inflow
2 a Cash Outflow
3 b Earnings
4 c Required rate of return
5 d Equity value
6 e
7 f Offer
8 g Advantage
9 g
10 i Earnings
Cost of Capital
Test 2 Offer
11 b ft Rate of return
12 a tf EVA to the acquiring firm
13 c tt
14 b ft Earnings
15 a tf Required rate of return
16 b ft Equity value-restated
17 c tt Equity value-original
18 a tf Equity control premium
19 c tt
20 b ft Problem 2

Capital Invested (beginning of year)


WACC
Profit after tax (tax rate 25%)
9,686.67 Interest Expense
14,146.67 Net operating profits after tax
10,610.00 Cost of Capital
Economic Value added

Problem 3
Noncurrent Liab
Shareholders' Equity
Total Capital*

Cost of Debt
Cost of Equity
WACC

Noncurrent liabilities
Shareholders' Equity
Total Capital**

NOPAT = Operating profit x (1 - tax rate)


Cost of capital
EVA
Problem 4
Debt
Common Equity
WACC

Pre-tax operating income


Less:Tax
Net operating profit after tax

Current Assets
Long-term Assets (operating)
Other Long-term Assets (idle assets)
Current Liabilities
Long-term Debts and Shareholder's Equity
Cost of Capital
EVA

Net operating profit after tax


WACC
Capitalization of Earnings Value

Idle Assets
Equity value of Billick Brothers
P 12.00 Market 12.00
Earnings 1.00 BV 5.71
500,000.00 PE 12.00 2.10
- 100,000.00
400,000.00 5.71 0.18
12%
3,333,333.33 21 or
Earnings 400,000.00
3,500,000.00 Offer 3,500,000.00
166,666.67 Accept offer 22. Cost of Capital 420,000.00
(2 possible answers) EVA - 20,000.00
400,000.00

3,500,000.00
0.10 350,000.00
50,000.00 23. 35.00 11.67

400,000.00
10%
4,000,000.00
3,333,333.33
666,666.67 24

2020 2021 2022


54,236.00 50,323.00 55,979.00
8.22% 8.28% 8.37%
7,265.00 5,356.00 4,336.00
4,460.00 4,167.00 4,682.00
10,610.00 8,481.25 25. 7,847.50 28
4,458.20 4,166.74 26. 4,685.44 29
6,151.80 4,314.51 27. 3,162.06 30

Weight
1,000,000.00 25%
3,000,000.00 75%
4,000,000.00

1.50%
9.00%
10.50% 31

1,000,000.00
2,600,000.00
3,600,000.00 32

600,000.00
378,000.00
222,000.00 33.
Weight Cost
50.00% 9.00% 3.15%
50.00% 12.50% 6.25%
9.40%

Segment A Segment B Segment C


4,000,000.00 2,000,000.00 3,000,000.00
1,200,000.00 600,000.00 900,000.00
2,800,000.00 1,400,000.00 2,100,000.00

Segment A Segment B Segment C


4,000,000.00 3,000,000.00 4,000,000
16,000,000.00 13,000,000.00 8,000,000.00
1,000,000.00 1,500,000.00 500,000.00
2,000,000.00 1,000,000.00 1,500,000.00
19,000,000.00 16,500,000.00 11,000,000.00
1,786,000.00 1,551,000.00 1,034,000.00
1,014,000.00 - 151,000.00 1,066,000.00
34. 36 38
Total
2,800,000.00 1,400,000.00 2,100,000.00
9.40% 9.40% 9.40%
29,787,234.04 14,893,617.02 22,340,425.53 67,021,276.60
35. 37 39
1,000,000.00 1,500,000.00 500,000.00 3,000,000.00
70,021,276.60 40
2.10

Do not accept the offer

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