Case Solutions

Input boxes in tan

Output boxes in yellow
Given data in blue
Calculations in red
Answers in green

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then "Options," "Add-Ins" and select
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equire that
Chapter 2
Cash Flows and Financial Statements at Sunset Boards

Input area:

2017 2018
Cost of goods sold $ 255,605 $ 322,742
Cash $ 36,884 $ 55,725
Depreciation $ 72,158 $ 81,559
Interest expense $ 15,687 $ 17,980
Selling & Administrative $ 50,268 $ 65,610
Accounts payable $ 26,186 $ 44,318
Net fixed assets $ 318,345 $ 387,855
Sales $ 501,441 $ 611,224
Accounts receivable $ 26,136 $ 33,901
Notes payable $ 29,712 $ 32,441
Long-term debt $ 160,689 $ 175,340
Inventory $ 50,318 $ 67,674
New equity $ - $ 19,500

Tax rate 21%

Dividend percentage 40%

Output area:
 2017 Income Statement
Sales $ 501,441
Cost of goods sold 255,605
Selling & Administrative 50,268
Depreciation 72,158
EBIT $ 123,410
Interest 15,687
EBT $ 107,723
Taxes 22,622
Net income $ 85,101
Dividends $ 34,040
Addition to retained earnings $ 51,061

2018 Income Statement

Sales $ 611,224
Cost of goods sold 322,742
Selling & Administrative 65,610
Depreciation 81,559
EBIT $ 141,313
Interest 17,980
EBT $ 123,333
Taxes 25,900
Net income $ 97,433
Dividends $ 38,973
Addition to retained earnings $ 58,460

Balance sheet as of Dec. 31, 2017

Cash $ 36,884 Accounts payable $ 26,186
Accounts receivable 26,136 Notes payable 29,712
Inventory 50,318 Current liabilities $ 55,898
Current assets $ 113,338
Long-term debt $ 160,689
Net fixed assets $ 318,345 Owners' equity $ 215,096
Total assets $ 431,683 Total liab. & equity $ 431,683

Balance sheet as of Dec. 31, 2018

Cash $ 55,725 Accounts payable $ 44,318
Accounts receivable 33,901 Notes payable 32,441
Inventory 67,674 Current liabilities $ 76,759
Current assets $ 157,300
Long-term debt $ 175,340
Net fixed assets $ 387,855 Owners' equity $ 293,056
Total assets $ 545,155 Total liab. & equity $ 545,155

2017 2018
Operating cash flow $ 172,946 $ 196,972
Capital Spending
Ending net fixed assets $ 387,855
- Beginning net fixed assets 318,345
+ Depreciation 81,559
Net capital spending $ 151,069

Change in Net Working Capital

Ending NWC $ 80,541
-Beginning NWC 57,440
Change in NWC $ 23,101

Cash Flow from Assets

Operating cash flow $ 196,972
- Net capital spending 151,069
-Change in NWC 23,101
Cash flow from assets $ 22,802

Cash Flow to Creditors

Interest paid $ 17,980
-Net New Borrowing 14,651
Cash flow to Creditors $ 3,329

Cash Flow to Stockholders

Dividends paid $ 38,973
-Net new equity raised 19,500
Cash flow to Stockholders $ 19,473
Chapter 3
Ratios and Financial Planning at S&S Air

Input area:

Tax rate 25%

Sales $ 46,298,115
COGS 34,536,913
Other expenses 5,870,865
Depreciation 2,074,853
EBIT $ 3,815,484
Interest 725,098
Taxable income $ 3,090,386
Taxes (25%) 772,597
Net income $ 2,317,789

Dividends $ 705,000
Add to RE $ 1,612,789

Assets Liabilities & Equity

Current Assets Current Liabilities
Cash $ 524,963 Accounts Payable $ 1,068,356
Accounts rec. 843,094 Notes Payable 2,439,553
Inventory 1,235,161 Total CL $ 3,507,909
Total CA $ 2,603,218
Long-term debt $ 6,300,000

Shareholder Equity
Fixed assets Common stock $ 460,000
Net PP&E $ 20,381,945 Retained earnings 12,717,254
Total Equity $ 13,177,254

Total Assets $ 22,985,163 Total L&E $ 22,985,163

Output area:

Current ratio 0.74

Quick ratio 0.39
Cash ratio 0.15
Total asset turnover 2.01
Inventory turnover 27.96
Receivables turnover 54.91
Total debt ratio 0.43
Debt-equity ratio 0.74
Equity multiplier 1.74
Times interest earned 5.26
Cash coverage ratio 8.12
Profit margin 5.01%
Return on assets 10.08%
Return on equity 17.59%
Chapter 4
Planning for Growth at S&S Air

Input area:

Sales $ 46,298,115
COGS 34,536,913
Other expenses 5,870,865
Depreciation 2,074,853
EBIT $ 3,815,484
Interest 725,098
Taxable income $ 3,090,386
Taxes (40%) 772,597
Net income $ 2,317,789

Dividends $ 705,000
Add to RE $ 1,612,789

Assets Liabilities & Equity

Current Assets Current Liabilities
Cash $ 524,963 Accounts Payable $ 1,068,356
Accounts rec. 843,094 Notes Payable 2,439,553
Inventory 1,235,161 Total CL $ 3,507,909
Total CA $ 2,603,218
Long-term debt $ 6,300,000
Fixed assets
Net PP&E $ 20,381,945 Shareholder Equity
Common stock $ 460,000
Retained earnings 12,717,254
Total Equity $ 13,177,254

Total Assets $ 22,985,163 Total L&E $ 22,985,163

Growth rate 12%

Minimum FA purchase $ 5,000,000

Output area:

Return on assets 10.08%

Return on equity 17.59%

Retention ratio 0.70

Internal growth rate 7.55%
Sustainable growth rate 13.95%

Sales $ 51,853,889
COGS 38,681,343
Other expenses 6,575,369
Depreciation 2,074,853
EBIT $ 4,522,324
Interest 725,098
Taxable income $ 3,797,226
Taxes (40%) 1,518,891
Net income $ 2,278,336

Dividends $ 693,000
Add to RE 1,585,336
 Assets Liabilities & Equity
Current Assets Current Liabilities
Cash $ 587,959 Accounts Payable $ 1,196,559
Accounts rec. 944,265 Notes Payable 2,439,553
Inventory 1,383,380 Total CL $ 3,636,112
Total CA $ 2,915,604
Long-term debt $ 6,300,000
Fixed assets
Net PP&E $ 22,827,778 Shareholder Equity
Common stock $ 460,000
Retained earnings 14,302,590
Total Equity $ 14,762,590

Total Assets $ 25,743,383 Total L&E $ 24,698,702

EFN $ 1,044,681

EFN if minimum FA purchase is $ 5,000,000

Depreciation as a percentage of sales 10.18%

New fixed assets $ 25,381,945

Sales $ 51,853,889
COGS 38,681,343
Other expenses 6,575,369
Depreciation 2,583,846
EBIT $ 4,013,332
Interest 725,098
Taxable income $ 3,288,234
Taxes (40%) 1,315,293
Net income $ 1,972,940

Dividends $ 600,108
Add to RE 1,372,833

Assets Liabilities & Equity

Current Assets Current Liabilities
Cash $ 587,959 Accounts Payable $ 1,196,559
Accounts rec. 944,265 Notes Payable 2,439,553
Inventory 1,383,380 Total CL $ 3,636,112
Total CA $ 2,915,604
Long-term debt $ 6,300,000
Fixed assets
Net PP&E $ 25,381,945 Shareholder Equity
Common stock $ 460,000
Retained earnings 14,090,087
Total Equity $ 14,550,087

Total Assets $ 28,297,549 Total L&E $ 24,486,198

EFN $ 3,811,351
 Chapter 6
The MBA Decision

Input area:

Current salary $ 53,000

Years until retirement 38
Salary increase 3%
Tax rate 26%

Wilton
Tuition per year $ 58,000
Books & Supplies $ 2,000
Signing bonus $ 10,000
Starting salary $ 87,000
Salary increase 4%
Tax rate 31%

Mount Perry
Tuition per year $ 75,000
Books & Supplies $ 4,200
Signing bonus $ 8,000
Starting salary $ 78,000
Salary increase 3.5%
Tax rate 29%

Both schools
Health insurance $ 3,000
Room & Board reduction $ 4,000

Discount rate 5.50%

Output area:

3. Current job
Aftertax income $ 39,220.00

Present value of salary $ 938,149.63

Wilton MBA
Direct costs 59,000.00

PV of tuition & expenses $ (114,924.17)

Aftertax bonus $ 6,900.00

PV of bonus $ 6,199.32

Aftertax salary $ 60,030.00

PV of salary in two years $ 1,612,050.35

Value of salary today $ 1,448,350.53

PV of attending Wilton $ 1,339,625.68

Mount Perry MBA

PV of tuition & expenses $ (78,200.00)
 PV of signing bonus $ 5,383.89

Aftertax salary $ 55,380.00

PV of salary in one year $ 1,405,123.99

PV of salary today $ 1,331,871.08

PV of attending Mt. Perry $ 1,259,054.96

5. Current job PV minus

bonus after Wilton costs $ 1,046,874.48

Aftertax beginning salary $ 38,983.82

Pretax beginning salary $ 56,498.28

 Chapter 8
Stock Valuation at Ragan, Inc.

Input area:

Shares owned by each sibling 50,000

Ragan EPS $ 3.15
Dividend to each sibling $ 45,000
Ragan ROE 17%
Ragan required return 14%

EPS DPS Stock price ROE R

Artic Cooling, Inc. $ 1.30 $ 0.16 $ 25.34 8.50% 10.00%
National Heating & Cooling 1.95 0.23 29.85 10.50% 13.00%
Expert HVAC Corp. (0.37) 0.14 22.13 9.78% 12.00%
Industry average $ 0.96 $ 0.18 $ 25.77 9.59% 11.67%

Expert EPS w/o write-off $ 1.10

Output area:

1) Total earnings $ 315,000

Retention ratio 0.71
Growth rate 12.14%
Current dividend per share $ 0.90
Dividend per share next year $ 1.01

Value per share $ 54.35

2) Industry EPS $ 1.45

Industry payout ratio 12.18%
Industry retention ratio 87.82%
Industry growth rate 8.42%

Year Dividend
1 $ 1.01
2 $ 1.13
3 $ 1.27
4 $ 1.42
5 $ 1.60
6 $ 1.73

Stock value in Year 5 $ 53.38

Stock price today $ 35.30

3) Industry PE 17.77

Ragan PE (original assumption) 17.25

Ragan PE (revised assumption) 11.21

Stock price implied by

industry PE $ 55.99

5) ROE 11.79%
Chapter 9
Bullock Gold Mining

Input area:

Year Cash flow

0 $ (635,000,000)
1 $ 89,000,000
2 $ 105,000,000
3 $ 130,000,000
4 $ 173,000,000
5 $ 205,000,000
6 $ 155,000,000
7 $ 145,000,000
8 $ 122,000,000
9 $ (45,000,000)

Required return 12%

Output area:

Payback period 4.67

IRR 13.02% =IRR(D8:D17)

IRR -74.18% =IRR(D8:D17,-0.99)

MIRR 12.45% =MIRR(D8:D17,D19,D19)

Profitability index 1.04 =NPV(D19,D9:D17)/-D8

NPV $ 24,132,970.75 =NPV(D19,D9:D17)+D8

Chapter 10
Conch Republic Electronics, Part 1

Input Area:

Equipment $ 43,500,000
Salvage value $ 6,500,000
R&D $ 750,000 sunk cost
Marketing study $ 200,000 sunk cost

Year 1 Year 2 Year 3

Sales(units) 155,000 165,000 125,000
Depreciation rate 14.29% 24.49% 17.49%
Sales of old phone 95,000 65,000
Lost sales 30,000 30,000

Price $ 535
VC $ 220
FC $ 6,400,000
Price of old phone $ 385
Revised price
of old phone $ 215
VC of old phone $ 145
Tax rate 21%
NWC percentage 20%
Required return 12%

Output Area:

Old phone price reduction $ 170

Sales Year 1 Year 2 Year 3

New $82,925,000 $88,275,000 $66,875,000
Lost sales (11,550,000) (11,550,000)
Lost rev. (11,050,000) (5,950,000)
Net sales $60,325,000 $70,775,000 $66,875,000

VC
New $34,100,000 $36,300,000 $27,500,000
Lost sales (4,350,000) (4,350,000)
$29,750,000 $31,950,000 $27,500,000

Sales $60,325,000 $70,775,000 $66,875,000

VC 29,750,000 31,950,000 27,500,000
Fixed costs 6,400,000 6,400,000 6,400,000
Dep 6,216,150 10,653,150 7,608,150
EBT $17,958,850 $21,771,850 $25,366,850
Tax 3,771,359 4,572,089 5,327,039
NI $14,187,492 $17,199,762 $20,039,812
+Dep 6,216,150 10,653,150 7,608,150
OCF $20,403,642 $27,852,912 $27,647,962

NWC
Beg $0 $12,065,000 $14,155,000
End 12,065,000 14,155,000 13,375,000
NWC CF ($12,065,000) ($2,090,000) $780,000

Net CF $8,338,642 $25,762,912 $28,427,962

Salvage
BV of equipment $ 9,704,850
Taxes 673,019
Salvage CF $ 7,173,019

Net CF Time
0 $ (43,500,000)
1 8,338,642
2 25,762,912 $ (9,398,447)
3 28,427,962
4 22,935,712
5 31,761,524

Payback period 2.331

PI 1.858
IRR 37.51%
NPV $37,316,113.42
 Year 4 Year 5
95,000 75,000
12.49% 8.93%

Year 4 Year 5
$50,825,000 $40,125,000

$50,825,000 $40,125,000

$20,900,000 $16,500,000
$20,900,000 $16,500,000

$50,825,000 $40,125,000
20,900,000 16,500,000
6,400,000 6,400,000
5,433,150 3,884,550
$18,091,850 $13,340,450
3,799,289 2,801,495
$14,292,562 $10,538,956
5,433,150 3,884,550
$19,725,712 $14,423,506

$13,375,000 $10,165,000
10,165,000 0
$3,210,000 $10,165,000

$22,935,712 $24,588,506
Chapter 11
Conch Republic Electronics, Part 2

Input Area:

Equipment $ 43,500,000
Salvage value $ 6,500,000
R&D $ 750,000 sunk cost
Marketing study $ 200,000 sunk cost

Year 1 Year 2 Year 3

Sales(units) 155,000 165,000 125,000
Depreciation rate 14.29% 24.49% 17.49%
Sales of old PDA 95,000 65,000
Lost sales 30,000 30,000

Price $ 535
VC $ 220
FC $ 6,400,000
Price of old PDA $ 385
Price reduction
of old PDA $ 215
VC of old PDA $ 145
Tax rate 21%
NWC percentage 20%
Required return 12%

Sensivity analysis
New price $ 540
Quantity change 100 NOTE: Change in units per year

Output Area:

Sensitivity to change in price

Sales Year 1 Year 2 Year 3

New $83,700,000 $89,100,000 $67,500,000
Lost sales (11,550,000) (11,550,000)
Lost rev. (11,050,000) (5,950,000)
Net sales $61,100,000 $71,600,000 $67,500,000

VC
New $34,100,000 $36,300,000 $27,500,000
Lost sales 4,350,000 4,350,000
$29,750,000 $31,950,000 $27,500,000

Sales $61,100,000 $71,600,000 $67,500,000

VC 29,750,000 31,950,000 27,500,000
Fixed costs 6,400,000 6,400,000 6,400,000
Dep 6,216,150 10,653,150 7,608,150
EBT $18,733,850 $22,596,850 $25,991,850
Tax 3,934,109 4,745,339 5,458,289
NI $14,799,742 $17,851,512 $20,533,562
+Dep 6,216,150 10,653,150 7,608,150
OCF $21,015,892 $28,504,662 $28,141,712

NWC
Beg $0 $12,220,000 $14,320,000
End 12,220,000 14,320,000 13,500,000
NWC CF ($12,220,000) ($2,100,000) $820,000

Net CF $8,795,892 $26,404,662 $28,961,712

Salvage
BV of equipment $9,704,850
Taxes 673,019
Salvage CF $7,173,019

Net CF Time
0 $ (43,500,000)
1 8,795,892
2 26,404,662
3 28,961,712
4 23,340,962
5 32,152,774

NPV $ 39,095,433.68

DNPV/DP $ 355,864.05

Sensitivity to change in quantity

Sales Year 1 Year 2 Year 3
New $82,978,500 $88,328,500 $66,928,500
Lost sales (11,550,000) (11,550,000)
Lost rev. (11,050,000) (5,950,000)
Net sales $60,378,500 $70,828,500 $66,928,500

VC
New $34,122,000 $36,322,000 $27,522,000
Lost sales 4,350,000 4,350,000
$29,772,000 $31,972,000 $27,522,000

Sales $60,378,500 $70,828,500 $66,928,500

VC 29,772,000 31,972,000 27,522,000
Fixed costs 6,400,000 6,400,000 6,400,000
Dep 6,216,150 10,653,150 7,608,150
EBT $17,990,350 $21,803,350 $25,398,350
Tax 3,777,974 4,578,704 5,333,654
NI $14,212,377 $17,224,647 $20,064,697
+Dep 6,216,150 10,653,150 7,608,150
OCF $20,428,527 $27,877,797 $27,672,847

NWC
Beg $0 $12,075,700 $14,165,700
End 12,075,700 14,165,700 13,385,700
NWC CF ($12,075,700) ($2,090,000) $780,000

Net CF $8,352,827 $25,787,797 $28,452,847

Salvage
BV of equipment $9,704,850
Taxes 673,019
Salvage CF $7,173,019

Net CF Time
0 $ (43,500,000)
1 8,352,827
2 25,787,797
3 28,452,847
4 22,960,597
5 31,797,109
NPV $37,402,336.17

DNPV/DQ $ 862.23
 Year 4 Year 5
95,000 75,000
12.49% 8.93%

Year 4 Year 5
$51,300,000 $40,500,000
$51,300,000 $40,500,000

$20,900,000 $16,500,000

$20,900,000 $16,500,000

$51,300,000 $40,500,000
20,900,000 16,500,000
6,400,000 6,400,000
5,433,150 3,884,550
$18,566,850 $13,715,450
3,899,039 2,880,245
$14,667,812 $10,835,206
5,433,150 3,884,550
$20,100,962 $14,719,756

$13,500,000 $10,260,000
10,260,000 0
$3,240,000 $10,260,000

$23,340,962 $24,979,756
 Year 4 Year 5
$50,878,500 $40,178,500

$50,878,500 $40,178,500

$20,922,000 $16,522,000

$20,922,000 $16,522,000

$50,878,500 $40,178,500
20,922,000 16,522,000
6,400,000 6,400,000
5,433,150 3,884,550
$18,123,350 $13,371,950
3,805,904 2,808,110
$14,317,447 $10,563,841
5,433,150 3,884,550
$19,750,597 $14,448,391

$13,385,700 $10,175,700
10,175,700 0
$3,210,000 $10,175,700

$22,960,597 $24,624,091
Chapter 12
A Job at S&S Air

Input area:

10-year
annual return Standard deviation
Bledsoe S&P 500 Index Fund 6.88% 10.75%
Bledsoe Small-Cap Fund 9.29% 12.81%
Bledsoe Large Company Stock Fund 3.56% 10.99%
Bledsoe Bond Fund 5.27% 7.12%

Company stock expected return 17.00%

Company stock standard deviation 70.00%

Output area:

Risk-free rate
2007 4.52%
2008 1.24%
2009 0.15%
2010 0.14%
2011 0.60%
2012 0.08%
2013 0.05%
2014 0.03%
2015 0.04%
2016 0.21%

Averege risk-free rate 0.71%

Bledsoe S&P 500 Index Fund 0.5743
Bledsoe Small-Cap Fund 0.6701
Bledsoe Large Company Stock Fund 0.2597
Bledsoe Bond Fund 0.6410
Company stock 0.2328
Chapter 13
The Beta for Colgate-Palmolive

Input area:

Monthly
Risk-free Risk-free Stock price Return
0 Dec-11 $ 41.27
1 Jan-12 0.003 0.00021 $ 40.79 -0.0117
2 Feb-12 0.008 0.00063 $ 41.89 0.0271
3 Mar-12 0.007 0.00056 $ 43.96 0.0494
4 Apr-12 0.007 0.00056 $ 44.77 0.0183
5 May-12 0.008 0.00063 $ 44.48 -0.0065
6 Jun-12 0.008 0.00063 $ 47.10 0.0590
7 Jul-12 0.008 0.00069 $ 48.86 0.0374
8 Aug-12 0.008 0.00069 $ 48.38 -0.0098
9 Sep-12 0.009 0.00076 $ 48.80 0.0086
10 Oct-12 0.008 0.00069 $ 48.04 -0.0156
11 Nov-12 0.008 0.00063 $ 49.66 0.0337
12 Dec-12 0.006 0.00049 $ 47.85 -0.0365
13 Jan-13 0.006 0.00049 $ 49.42 0.0329
14 Feb-13 0.008 0.00069 $ 52.67 0.0658
15 Mar-13 0.008 0.00063 $ 54.33 0.0315
16 Apr-13 0.005 0.00042 $ 55.28 0.0175
17 May-13 0.003 0.00028 $ 53.56 -0.0312
18 Jun-13 0.004 0.00035 $ 53.05 -0.0095
19 Jul-13 0.003 0.00028 $ 55.76 0.0511
20 Aug-13 0.003 0.00028 $ 53.80 -0.0351
21 Sep-13 0.002 0.00014 $ 55.23 0.0265
22 Oct-13 0.004 0.00035 $ 60.61 0.0975
23 Nov-13 0.006 0.00049 $ 61.62 0.0167
24 Dec-13 0.006 0.00049 $ 61.06 -0.0091
25 Jan-14 0.003 0.00028 $ 57.63 -0.0561
26 Feb-14 0.004 0.00035 $ 59.14 0.0261
27 Mar-14 0.004 0.00035 $ 61.06 0.0325
28 Apr-14 0.003 0.00021 $ 63.69 0.0430
29 May-14 0.003 0.00021 $ 64.73 0.0163
30 Jun-14 0.003 0.00028 $ 64.52 -0.0032
31 Jul-14 0.003 0.00021 $ 60.31 -0.0653
32 Aug-14 0.003 0.00021 $ 61.58 0.0210
33 Sep-14 0.002 0.00014 $ 62.04 0.0076
34 Oct-14 0.002 0.00014 $ 63.98 0.0312
35 Nov-14 0.002 0.00014 $ 66.57 0.0405
36 Dec-14 0.003 0.00021 $ 66.19 -0.0057
37 Jan-15 0.003 0.00021 $ 64.93 -0.0190
38 Feb-15 0.002 0.00014 $ 68.10 0.0489
39 Mar-15 0.003 0.00021 $ 66.68 -0.0209
40 Apr-15 0.002 0.00014 $ 65.06 -0.0243
41 May-15 0.002 0.00014 $ 64.59 -0.0073
42 Jun-15 0.002 0.00014 $ 63.25 -0.0207
43 Jul-15 0.003 0.00021 $ 66.15 0.0458
44 Aug-15 0.006 0.00049 $ 61.08 -0.0766
45 Sep-15 0.002 0.00014 $ 61.71 0.0103
46 Oct-15 0.002 0.00014 $ 64.89 0.0515
47 Nov-15 0.011 0.00090 $ 64.23 -0.0101
48 Dec-15 0.019 0.00160 $ 65.15 0.0143
49 Jan-16 0.022 0.00181 $ 66.45 0.0199
50 Feb-16 0.026 0.00215 $ 64.59 -0.0280
51 Mar-16 0.025 0.00208 $ 69.52 0.0763
52 Apr-16 0.019 0.00160 $ 70.17 0.0093
53 May-16 0.023 0.00194 $ 69.66 -0.0072
54 Jun-16 0.023 0.00188 $ 72.42 0.0396
55 Jul-16 0.025 0.00208 $ 74.03 0.0221
56 Aug-16 0.025 0.00208 $ 73.94 -0.0012
57 Sep-16 0.024 0.00201 $ 73.74 -0.0027
58 Oct-16 0.028 0.00229 $ 71.36 -0.0322
59 Nov-16 0.038 0.00313 $ 65.23 -0.0859
60 Dec-16 0.043 0.00354 $ 65.44 0.0032

Last 36 months
Average return 0.09%
Standard deviation 0.1004%

Last 60 months
Average return 0.08%
Standard deviation 0.0810%
 S&P 500 Stock risk S&P risk
S&P 500 return premium premium
1257.60
1312.41 0.0436 -0.0119 0.0434
1365.68 0.0406 0.0265 0.0400
1408.47 0.0313 0.0488 0.0308
1397.91 -0.0075 0.0177 -0.0081
1310.33 -0.0627 -0.0071 -0.0633
1362.16 0.0396 0.0584 0.0389
1379.32 0.0126 0.0367 0.0119
1406.58 0.0198 -0.0105 0.0191
1440.67 0.0242 0.0078 0.0235
1412.16 -0.0198 -0.0163 -0.0205
1416.18 0.0028 0.0331 0.0022
1426.19 0.0071 -0.0370 0.0066
1498.11 0.0504 0.0325 0.0499
1514.68 0.0111 0.0651 0.0104
1569.19 0.0360 0.0308 0.0354
1597.57 0.0181 0.0171 0.0177
1630.74 0.0208 -0.0315 0.0205
1606.28 -0.0150 -0.0099 -0.0153
1685.73 0.0495 0.0508 0.0492
1632.97 -0.0313 -0.0354 -0.0316
1681.55 0.0297 0.0263 0.0296
1756.54 0.0446 0.0971 0.0442
1805.81 0.0280 0.0162 0.0276
1848.36 0.0236 -0.0096 0.0231
1782.59 -0.0356 -0.0564 -0.0359
1859.45 0.0431 0.0258 0.0428
1872.34 0.0069 0.0321 0.0066
1883.95 0.0062 0.0428 0.0060
1923.57 0.0210 0.0161 0.0208
1960.23 0.0191 -0.0035 0.0188
1930.67 -0.0151 -0.0655 -0.0153
2003.37 0.0377 0.0208 0.0374
1972.29 -0.0155 0.0074 -0.0157
2018.05 0.0232 0.0311 0.0231
2067.56 0.0245 0.0404 0.0244
2058.90 -0.0042 -0.0060 -0.0044
1994.99 -0.0310 -0.0192 -0.0312
2104.50 0.0549 0.0487 0.0548
2067.89 -0.0174 -0.0211 -0.0176
2085.51 0.0085 -0.0244 0.0084
2107.39 0.0105 -0.0074 0.0104
2063.11 -0.0210 -0.0208 -0.0212
2103.84 0.0197 0.0456 0.0195
1972.18 -0.0626 -0.0771 -0.0631
1920.03 -0.0264 0.0102 -0.0266
2079.36 0.0830 0.0514 0.0828
2080.41 0.0005 -0.0110 -0.0004
2043.94 -0.0175 0.0127 -0.0191
1940.24 -0.0507 0.0181 -0.0525
1932.23 -0.0041 -0.0301 -0.0063
2059.74 0.0660 0.0742 0.0639
2065.30 0.0027 0.0077 0.0011
2096.95 0.0153 -0.0091 0.0134
2098.86 0.0009 0.0378 -0.0010
2173.60 0.0356 0.0201 0.0335
2170.95 -0.0012 -0.0033 -0.0033
2168.27 -0.0012 -0.0047 -0.0032
2126.15 -0.0194 -0.0345 -0.0217
2198.81 0.0342 -0.0890 0.0310
2238.83 0.0182 -0.0003 0.0147

0.26% 0.58%
3.67% 3.08%

0.84% 1.01%
3.61% 2.99%
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.573431
R Square 0.328824
Adjusted R 0.309083
Standard E 0.030613
Observatio 36

ANOVA
df SS MS F Significance F
Regression 1 0.01561 0.01561 16.65732 0.000256
Residual 34 0.031863 0.000937
Total 35 0.047474

Coefficients
Standard Error t Stat P-value Lower 95%Upper 95%
Lower 95.0%
Upper 95.0%
Intercept -0.001679 0.005167 -0.324973 0.747193 -0.01218 0.008821 -0.01218 0.008821
X Variable 0.685463 0.16795 4.081339 0.000256 0.344146 1.026779 0.344146 1.026779

RESIDUAL OUTPUT

ObservationPredicted YResiduals
1 -0.02626 -0.030094
2 0.027638 -0.001854
3 0.002835 0.029287
4 0.002428 0.040412
5 0.012594 0.003543
6 0.011194 -0.014688
7 -0.012159 -0.053328
8 0.023989 -0.00322
9 -0.012408 0.019839
10 0.014129 0.016948
11 0.015043 0.025339
12 -0.004693 -0.001263
13 -0.023099 0.003876
14 0.035852 0.012883
15 -0.013746 -0.00736
16 0.004066 -0.028498
17 0.005417 -0.012839
18 -0.016177 -0.004624
19 0.01171 0.033844
20 -0.044909 -0.032172
21 -0.0199 0.03011
22 0.055107 -0.003748
23 -0.001952 -0.009049
24 -0.01479 0.027505
25 -0.037694 0.055754
26 -0.005985 -0.024156
27 0.042127 0.032115
28 -0.000924 0.008641
29 0.007492 -0.016628
30 -0.00234 0.04009
31 0.021302 -0.001236
32 -0.003943 0.00065
33 -0.003906 -0.000798
34 -0.016566 -0.017959
35 0.019604 -0.108632
36 0.008369 -0.008691
 0.1000

0.0800

0.0600

0.0400

0.0200

0.0000
Y

-0.0800 -0.0600 -0.0400 -0.0200 0.0000 0.0200 0.0400 0.0600 0.0800 0.1000 Y
Predicted Y
-0.0200

-0.0400

-0.0600

-0.0800

-0.1000

X Variable 1
0800 0.1000 Y
Predicted Y
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.565876
R Square 0.320216
Adjusted R 0.308495
Standard E 0.030098
Observatio 60

ANOVA
df SS MS F Significance F
Regression 1 0.024751 0.024751 27.32118 2.46E-06
Residual 58 0.052543 0.000906
Total 59 0.077293

Coefficients
Standard Error t Stat P-value Lower 95%Upper 95%
Lower 95.0%
Upper 95.0%

Y
Intercept 0.001196 0.004074 0.293662 0.770064 -0.006958 0.009351 -0.006958 0.009351
X Variable 0.685025 0.131056 5.226967 2.46E-06 0.422688 0.947361 0.422688 0.947361

-0.0800 -0.060

RESIDUAL OUTPUT

ObservationPredicted YResiduals
1 0.030909 -0.042822
2 0.028573 -0.002082
3 0.022279 0.026532
4 -0.00432 0.022059
5 -0.042149 0.035056
6 0.027864 0.030514
7 0.00935 0.027361
8 0.014259 -0.024734
9 0.017275 -0.009479
10 -0.012836 -0.003419
11 0.002718 0.030384
12 0.005705 -0.042689
13 0.035408 -0.002948
14 0.008297 0.056762
15 0.025421 0.005415
16 0.0133 0.003811
17 0.015229 -0.046744
18 -0.009316 -0.00054
19 0.034889 0.015945
20 -0.020434 -0.01492
21 0.02148 0.004865
22 0.031508 0.065598
23 0.020078 -0.003879
24 0.017004 -0.026608
25 -0.023369 -0.032985
26 0.030495 -0.004711
27 0.005707 0.026414
28 0.005301 0.037539
29 0.01546 0.000676
30 0.014061 -0.017555
31 -0.009276 -0.05621
32 0.026848 -0.006079
33 -0.009526 0.016957
34 0.016995 0.014082
35 0.017907 0.022474
36 -0.001816 -0.00414
37 -0.02021 0.000986
38 0.038704 0.010032
39 -0.010863 -0.010243
40 0.006938 -0.03137
41 0.008288 -0.01571
42 -0.013292 -0.007508
43 0.014577 0.030978
44 -0.042006 -0.035075
45 -0.017013 0.027223
46 0.057947 -0.006587
47 0.000924 -0.011924
48 -0.011906 0.024621
49 -0.034796 0.052855
50 -0.003106 -0.027034
51 0.044975 0.029267
52 0.001951 0.005766
53 0.010362 -0.019498
54 0.000536 0.037214
55 0.024163 -0.004096
56 -0.001066 -0.002226
57 -0.001029 -0.003675
58 -0.013681 -0.020844
59 0.022466 -0.111493
60 0.011238 -0.01156
 0.1500

0.1000

0.0500
Y

Y
Predicted Y
0.0000
-0.0800 -0.0600 -0.0400 -0.0200 0.0000 0.0200 0.0400 0.0600 0.0800 0.1000

-0.0500

-0.1000

X Variable 1
 Y
Predicted Y

0.1000
Chapter 14
The Cost of Capital for Swan Motors, Inc.

Input area:

Maturity Year Book value Quoted price YTM

2019 $ 835 98.200 1.121%
2021 $ 1,200 94.080 2.789%

BV of debt (balance sheet) $ 2,035 million

BV per share $ 17.890
Stock price $ 254.61
Market capitalization (billions) $ 40.96
Shares outstanding (millions) 160.87
Most recent dividend $ -
Beta 1.190
3-month Treasury bill rate 0.46%
Market risk premium 7.00%
Tax rate 21%

Output area:

RE from CAPM 8.79%

Book value Percent Market value

Maturity Year (millions) of total (millions)
2019 $ 835 0.41 819.97
2021 1,200 0.59 1,128.96
Total $ 2,035 1.00 $ 1,948.93

Weights
Book value of debt $ 2,035.000 million 0.4142
Book value of equity $ 2,877.964 million 0.5858
Book value of company $ 4,912.964 million

Market value of debt $ 1,948.930 million 0.0454

Market value of equity $ 40,960.000 million 0.9546
Market value of company $ 42,908.930 million
WACC using book value 5.84%

WACC using market value 8.47%

Percent Yield to Book Market
of total Maturity values values
0.42 1.121% 0.46% 0.47%
0.58 2.789% 1.64% 1.62%
1.00 2.10% 2.09%
Chapter 15
S&S Air Goes Public

Input area:

Underwriter fee 7.00%

Legal fees and expenses $ 2,100,000
SEC registration fees $ 12,000
Filing fees $ 15,000
NASDAQ listing fee $ 100,000
Transfer agent fee $ 6,500
Engraving expenses $ 520,000
Other expenses $ 110,000
Audit cost/year $ 300,000
IPO size $ 85,000,000

Output area:

Underwriter fees $ 5,950,000

Total fees excluding underwriter fees $ 2,863,500

Total fees $ 8,813,500

Net amount raised $ 79,050,000

Fee as a percentage of funds raised 11.15%

 Chapter 16
Stephenson Real Estate Recapitalization

Input area:

Shares outstanding 8,000,000

Share price $ 37.80
Purchase price $ 85,000,000
Increase in pretax earnings $ 14,125,000
Current cost of capital 10.20%
YTM on new debt 6.00%
Equity weight in new capital structure 70%
Tax rate 23%

Output area:

2. Assets $ 302,400,000 Equity $ 302,400,000

Total assets $ 302,400,000 Total Debt & Equity $ 302,400,000

3. a) Aftertax earnings increase $ 10,876,250

NPV $ 21,629,902

b) Assets $ 302,400,000
NPV of project 21,629,902 Equity $ 324,029,902
Total assets $ 324,029,902 Total Debt & Equity $ 324,029,902

New share price $ 40.50

New shares issued 2,098,572
Price

c) Cash $ 85,000,000
Old assets 302,400,000
NPV of project 21,629,902 Equity $ 409,029,902
Total assets $ 409,029,902 Total Debt & Equity $ 409,029,902
Total

New shares outstanding 10,098,572

New share price $ 40.50

d) PV of the project $ 106,629,902

Old assets $ 302,400,000

PV of project 106,629,902 Equity $ 409,029,902
Total assets $ 409,029,902 Total Debt & Equity $ 409,029,902

4. a) Market value of company $ 428,579,902

b) Value unlevered $ 409,029,902 Debt $ 85,000,000

Tax shield 19,550,000 Equity 343,579,902
Total assets $ 428,579,902 Total Debt & Equity $ 428,579,902

New stock price $ 42.95

 A B C D F G H
1 Chapter 18
2 Piepkorn Manufacturing Working Capital Management
3
4 Input Area:
5
6
7 Beginning cash balance $ 305,000
8 Outlay in fourth Q $ 525,000
9 Target cash balance $ 125,000
10 Q1 Q2 Q3 Q4
11 Gross sales $ 1,310,000 $ 1,390,000 $ 1,440,000 $ 1,530,000
12
13 Sales (1st quarter of next year) $ 1,405,000
14 Collection period 53
15 A/R $ 645,000
16 Percent uncollectible 20%
17 % of purchases for next Q sales 50%
18 Suppliers paid 42
19 % of sales for expenses 30%
20 Interest $ 135,000
21 Borrowing rate 1.5%
22 Invested securities 1.0%
23 Beginning short-term borrowing $ -
24 Change the following three lines for credit terms
25 Credit terms Piepkorn offers 1% 10 net 40
26 Percentage of customers taking credit 40%
27 Credit terms offered to Piepkorn 1.5% 15 net 40
28
29
30 Output Area:
31
32
33 Sales after discount $ 1,304,760.00 $ 1,384,440.00 $ 1,434,240.00 $ 1,523,880.00
34 Total credit purchases $ 695,000.00 $ 720,000.00 $ 765,000.00 $ 702,500.00
35 Credit purchases after discount $ 684,575.00 $ 709,200.00 $ 753,525.00 $ 691,962.50
36
37 Q1 Q2 Q3 Q4
38 A/R at beginning of Q collected $ 516,000.00 $ 768,358.67 $ 815,281.33 $ 844,608.00
39 Sales collection in current Q 536,401.33 569,158.67 589,632.00 626,484.00
40 Purchases last Q paid this Q (305,666.67) (319,468.33) (330,960.00) (351,645.00)
41 Purchase for next Q paid this Q (365,106.67) (378,240.00) (401,880.00) (369,046.67)
42 Expenses (393,000.00) (417,000.00) (432,000.00) (459,000.00)
43 Interest and dividends (135,000.00) (135,000.00) (135,000.00) (135,000.00)
44 Outlay (525,000.00)
45 Net cash inflow $ (146,372.00) $ 87,809.00 $ 105,073.33 $ (368,599.67)
46
 A B C D F G H
47 Cash Balance
48 Q1 Q2 Q3 Q4
49 Beginning cash balance $ 305,000.00 $ 158,628.00 $ 246,437.00 $ 351,510.33
50 Net cash inflow (146,372.00) 87,809.00 105,073.33 (368,599.67)
51 Ending cash balance $ 158,628.00 $ 246,437.00 $ 351,510.33 $ (17,089.33)
52 Minimum cash balance 125,000.00 125,000.00 125,000.00 125,000.00
53 Cumulative surplus (deficit) $ 33,628.00 $ 121,437.00 $ 226,510.33 $ (142,089.33)
54
55 Short-term Financial Plan
56 Target cash balance $ 125,000.00 $ 125,000.00 $ 125,000.00 $ 125,000.00
57 Net cash inflow (146,372.00) 87,809.00 105,073.33 (368,599.67)
58 New short-term investments - (88,163.28) (106,309.25) -
59 Income on short-term investments 1,800.00 354.28 1,235.91 2,299.01
60 Short-term investments sold 144,572.00 - - 229,900.53
61 New short-term borrowing - - - 136,400.14
62 Interest on short-term borrowing - - - -
63 Short-term borrowing repaid - - - -
64 Ending cash balance $ 125,000.00 $ 125,000.00 $ 125,000.00 $ 125,000.00
65 Minimum cash balance (125,000.00) (125,000.00) (125,000.00) (125,000.00)
66 Cumulative surplus (deficit) $ - $ - $ - $ -
67
68 Beginning short-term investments $ 180,000.00 $ 35,428.00 $ 123,591.28 $ 229,900.53
69 Ending short-term investments 35,428.00 123,591.28 229,900.53 -
70 Beginning short-term debt - - - -
71 Ending short-term debt $ - $ - $ - $ 136,400.14
72
73 Q1: Excess funds at start of quarter of $180,000.00 earns $1,800.00 in income.
74 Q2: Excess funds at start of quarter of $35,428.00 earns $354.28 in income.
75 Q3: Excess funds at start of quarter of $123,591.28 earns $1,235.91 in income.
76 Q4: Excess funds at start of quarter of $229,900.53 earns $2,299.01 in income.
77
78 Net cash cost
79 Q1 $ 1,800.00
80 Q2 354.28
81 Q3 1,235.91
82 Q4 2,299.01
83 Cash generated by short-term financing $ 5,689.20
84
85 Rate on credit offered by Piepkorn 13.01%
86
87 Rate on credit offered to Piepkorn 24.69%
88
 I
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
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23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
 I
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
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65
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88
 Chapter 19
Cash Management at Webb Corp.

Input Area:

Number of lockboxes 4
Daily payments $ 207,000
Investment account rate 0.013%
Wire transfer cost 0.20%
Sweep time (days) 14
Money market yield 0.013%
ACH transfer cost $ 175

Output:

1. FVA $ 11,578,596.73

2. FVA $ 11,590,485.29
The company should go ahead with the plan.

3. ACH transfer cost $ 387.14

Chapter 20
Credit Policy at Howlett Industries

Input Area:

Sales Default rate

Current policy $ 134,000,000 1.60%
Option 1 $ 158,000,000 2.50%
Option 2 $ 155,000,000 1.80%
Option 3 $ 170,000,000 2.20%

Variable costs 45%

Interest rate 6.00%

Output Area:

Daily interest rate 0.01597%

Current policy:

Daily sales $ 367,123.29

Variable costs (daily) $ 165,205.48
Defaults on sales (daily) $ 5,873.97
Administrative costs (daily) $ 8,076.71
Interest rate 0.5924%

NPV $ 31,563,539.77

Option 1:

Daily sales $ 432,876.71

Variable costs (daily) $ 194,794.52
Defaults on sales (daily) $ 10,821.92
Administrative costs (daily) $ 13,852.05
Interest rate 0.6406%

NPV $ 33,118,667.97
Option 2:

Daily sales $ 424,657.53

Variable costs (daily) $ 191,095.89
Defaults on sales (daily) $ 7,643.84
Administrative costs (daily) $ 10,191.78
Interest rate 0.8014%

NPV $ 26,727,604.87

Option 3:

Daily sales $ 465,753.42

Variable costs (daily) $ 209,589.04
Defaults on sales (daily) $ 10,246.58
Administrative costs (daily) $ 13,972.60
Interest rate 0.7692%

NPV $ 29,943,730.97
Administrative costs Receivables period
2.20% 37
3.20% 40
2.40% 50
3.00% 48
 Chapter 21
S&S Air Goes International

Input Area:

Sales per month € 5,700,000

Commission 5%
Current exhange rate ($/€) $ 1.09
Production costs 80%

3) Exhange rate ($/€) $ 1.03

Output Area:

Sales less commission € 5,415,000

Dollar value of sales $ 5,902,350

Total sales $ 6,213,000

Production costs $ 4,970,400

Profit at current exchange rate $ 931,950

3) At revised exchange rate:

Dollar value of sales $ 5,577,450
Production costs $ 4,970,400

Profit at new exchange rate $ 607,050

Breakeven exchange rate ($/€) $ 0.9179

 Chapter 23
Chatman Mortgage, Inc.

Input area:

Mortgage value $ 400,000

Years 25
Interest rate 6%

4) Interest rate 7%
5) Interest rate 5%

Output area:

1) Mortgage payment $ 2,577.21

4) Mortgage value $ 364,640.84

5) Mortgage value $ 440,856.91

Chapter 24
S&S Air's Convertible Bond

Input area:

Industry PE 14.50
Company EPS $ 1.30
Conversion price (stock) $ 25.00
Maturity (years) 20
Convertible bond coupon 4%
Conversion value of bond $ 800
Plain vanilla coupon 7%

Output area:

Stock price $ 18.85

Intrinsic bond value $ 679.67

Floor value $800.00

Conversion ratio 32.00

Conversion premium 32.63%

 Chapter 25
Exotic Cuisine Employee Stock Options

Input Area:

Strike price $55.00

Current stock price $26.32
Standard deviation 60%
Expiration (years) 3
Expiration (years) 10
Risk-free rate 2.40%
Risk-free rate 3.10%

Output Area:

1) Exercise in 3 years
d1 (0.1203)
d2 (1.1595)
N(d1) 0.4521
N(d2) 0.1231
Call $ 5.60

Exercise in 10 years
d1 0.7236
d2 (1.1737)
N(d1) 0.7654
N(d2) 0.1203
Call $ 15.29
Chapter 26
The Birdie Golf-Hybrid Golf Merger

Input Area:

Cash offer $ 185,000,000

2019 2020
Sales $ 330,000,000 $ 375,000,000
Production costs 231,000,000 262,500,000
Other expenses 33,000,000 38,000,000
Depreciation 27,000,000 31,000,000
EBIT $ 39,000,000 $ 43,500,000
Interest 7,500,000 9,000,000
Taxable income $ 31,500,000 $ 34,500,000
Taxes (21%) 6,615,000 7,245,000
Net income $ 24,885,000 $ 27,255,000

Additions to retained earnings $ - $ 16,000,000

Dividends from Hybrid today $ 55,000,000

Stock price of acquirer $ 87.00
Shares outstanding in acquirer 18,000,000
Shares outstanding in target 8,000,000
Borrowing rate 8%
Hybrid WACC 12.40%
Hybrid cost of equity 16.90%
Terminal value of Hybrid in five years $ 235,000,000

Tax rate 21%

Output Area:

Year 0 Year 1
Acquisition of Hybrid $ (185,000,000)
Dividends from Hybrid $ 55,000,000 $ 24,885,000
Terminal value of company
Total $ (130,000,000) $ 24,885,000
 Present values
Acquisition of Hybrid $ (185,000,000)
Dividends from Hybrid $ 55,000,000 $ 21,287,425
Terminal value of company
Total $ (130,000,000) $ 21,287,425

1) NPV $ 52,716,162.93

2) Highest price to offer $ 237,716,162.93

Price per share offered $ 23.13

Highest share price to offer $ 29.71

3) New share price $ 89.93

Exchange ratio 0.2571

4) Highest exchange ratio 0.3415

 2021 2022 2023
$ 415,000,000 $ 445,000,000 $ 495,000,000
290,500,000 311,500,000 346,500,000
41,000,000 45,000,000 49,000,000
33,000,000 36,000,000 36,000,000
$ 50,500,000 $ 52,500,000 $ 63,500,000
10,000,000 10,500,000 11,000,000
$ 40,500,000 $ 42,000,000 $ 52,500,000
8,505,000 8,820,000 11,025,000
$ 31,995,000 $ 33,180,000 $ 41,475,000

$ 19,000,000 $ 21,000,000 $ 25,000,000

Year 2 Year 3 Year 4 Year 5

$ 11,255,000 $ 12,995,000 $ 12,180,000 $ 16,475,000

235,000,000
$ 11,255,000 $ 12,995,000 $ 12,180,000 $ 251,475,000
$ 8,236,003 $ 8,134,535 $ 6,522,127 $ 7,546,627
130,989,446
$ 8,236,003 $ 8,134,535 $ 6,522,127 $ 138,536,073
 Chapter 27
The Decision to Lease or Buy at Warf Computers

Input area:

Purchase price $ 6,100,000

Year 1 depreciation 0.3333
Year 2 depreciation 0.4445
Year 3 depreciation 0.1481
Year 4 depreciation 0.0741
Salvage value $ 780,000
Lease payment $ 1,480,000
Security deposit $ 400,000
Cost of debt 11%
Tax rate 21%

Alternative lease:
Lease payments $ 1,775,000
Year 2 salvage value $ 3,200,000

Output area:

1) Aftertax cost of debt 8.69%

Year 0 Year 1 Year 2

Saved purchase $ 6,100,000
Lost salvage value
Lost depreciation tax shield $ (426,957) $ (569,405)
Security deposit (400,000)
Lease payment (1,480,000) (1,480,000) (1,480,000)
Tax on lease payment 310,800 310,800 310,800
Cash flow from leasing $ 4,530,800 $ (1,596,157) $ (1,738,605)

NAL $ 309,282.22

2) Book value in Year 2 $ 1,355,420

Year 0 Year 1 Year 2

Saved purchase $ 6,100,000
Lost salvage value $ (2,812,638)
Lost depreciation tax shield $ (426,957) (569,405)
Lease payment (1,775,000) (1,775,000)
Tax on lease payment 372,750 372,750
Cash flow from leasing $ 4,697,750 $ (1,829,207) $ (3,382,043)

NAL $ 151,933.10

PV of lease payments $3,374,099.10

 Year 3 Year 4

$ (616,200)
$ (189,716) (94,922)
400,000
(1,480,000)
310,800
$ (1,358,916) $ (311,122)