Alternatives Using I = 11% & n = 8

1 Present Value

2 Discount Rate = i
Periods = n
Annuity
PVIFA
Using Excel

3 Discount Rate = i
Periods = n
Future Value
PVIF

Using Excel
 Alternatives Using I = 12% & n = 8

1 Present Value

2 Discount Rate = i
Periods = n
Annuity
PVIFA
Using Excel

3 Discount Rate = i
Periods = n
Future Value
PVIF

Using Excel
 December 31, 2007 amount
Discount Rate = i
Periods = n
Annuity
FVIF

December 31, 2010 amount

Discount Rate = i
Periods = n
Present Value
FVIF
 Franklin Templeton
Future Value
Present Value
# of Periods
 Dr. Oats
Discount Rate = i 14%
Periods = n 5
Present Value -80,000
FVIF 1.925
Solution:
PV * FVIF = FV
-80,000 * 1.925 = $154,033

Discount Rate = i 14%

Periods = n 10
PV of Annuity 154,033
PVIFA 5.216
A = PV of Annuity / PVIFA
29,530 = $154,033 / 5.216
Solution: Law Suit Settlement
Time to Maturity = n
Yield to Maturity = i
Annuity = A
PVIFA
PVIF

Time to Maturity = n
Yield to Maturity = i
Annuity = A
PVIFA
PVIF

PVIFA @ 4%
PVIFA @ 12%
Difference
Law Suit Settlement
 Northwest Utility Company
Information
Corporate Tax Rate T
Annual Growth Rate g
Price, common stock Po
Dividend, common stock D1
Price, preferred stock Pp
Yield Preferred Stock
Dividend, preferred stock Dp
Flotation Costs F
Capital Structure
Debt
Preferred Stock
Common Equity

Cost (aftertax)
Debt (Kd)
Preferred Stock (Kp)
Common Equity (Ke)
Weighted Average
Cost of Capital (Ka)
 Data on Bond Issue
Issue Moody's Rating Price
Utilities:
Southwest Electric Power - 7 1/4s 2023 Aa2 $875.18
Pacific Bell - 7 3/8 2025 Aa3 $887.25
Pennsylvania Power&Light - 8 1/2 2022 A2 $950.66
Industrials:
Johnson&Johnson - 6 3/4 2023 Aaa $840.24
Dillard's Department Stores - 7 1/8 2023 A2 $920.92
Marriot Corp. - 10 2012 A3 $1,015.10
Solution:
Kd = Yield(1-T)
Kd =

Kp = Dp/(Pp-F)
Kp =

Ke = (D1/Po)+g
Ke =

Weights Weighted Cost

Yield to Maturity

8.24%
8.43%
8.99%

8.14%
8.44%
9.99%
 Delta Corp.
Capital Structure
Cost (aftertax) Weights
Debt (Kd)
Preferred Stock (Kp)
Common Equity (Ke)
Weighted Average
Cost of Capital (Ka)

Solution:
a) Retained Earnings million
X=retained earnings / %of retained earnings in the capital structure =

b) Debt million
Z=Amount of lower cost debt / %of debt in the capital structure =
 Weighted Cost

s in the capital structure =

n the capital structure =

 Nolan Corp.
a) Current Capital Structure
Cost (aftertax) Weights
Debt (Kd)
Preferred Stock (Kp)
Common Equity (Ke)
Weighted Average
Cost of Capital (Ka)

b) Retained Earnings million

X=retained earnings / %of retained earnings in the capital structure =

c) New Capital Structure

Cost (aftertax) Weights
Debt (Kd)
Preferred Stock (Kp)
New Common Equity (Kn)
Marginal cost
of Capital (Kmc)

d) Debt million
Z=Amount of lower cost debt / %of debt in the capital structure =

e) Capital Structure
Cost (aftertax) Weights
Debt (Kd)
Preferred Stock (Kp)
Common Equity (Ke)
Weighted Average
Cost of Capital (Ka)
 Weighted Cost

capital structure =

Weighted Cost

apital structure =

Weighted Cost
 THE McGEE CORPORATION
a) Current Capital Structure
Cost (aftertax)
Debt (Kd)
Preferred Stock (Kp)
Common Equity (Ke)
Weighted Average
Cost of Capital (Ka)

b) Retained Earnings

X=retained earnings / %of retained earnings in the capital structure

c) New Capital Structure

Cost (aftertax)
Debt (Kd)
Preferred Stock (Kp)
New Common Equity (Kn)
Marginal cost
of Capital (Kmc)

d) Debt
Z=Amount of lower cost debt / %of debt in the capital structure =

e) Capital Structure
Cost (aftertax)
Debt (Kd)
Preferred Stock (Kp)
Common Equity (Ke)
Weighted Average
Cost of Capital (Ka)
RATION
ucture
Weights Weighted Cost

million

ngs in the capital structure =

Weights Weighted Cost

million
t in the capital structure =

Weights Weighted Cost

 Eaton Electronic Company Solution:
Rf a) Kj = Rf +β*(Km-Rf)
Km Kj =
β
D1 b) Ke = D1/P0 + g
P0 Ke =
g

Modelo de valuación de activos de capital - CAPM

 Information Solution:
Rf 6.00% a) Kj = Rf +β*(Km-Rf)
Km 10.00% Kj =
βa 0.70
βb 1.40 b) Kj = Rf +β*(Km-Rf)
βc 1.70 Kj =

c) Kj = Rf +β*(Km-Rf)
Kj =
8.80%

11.60%

12.80%
 Information Solution:
Rf 7.00% a) Kj = Rf +β*(Km-Rf)
Km-Rf 6.50% Kj = 11.55%
βa 0.70
βb 1.40 b) Kj = Rf +β*(Km-Rf)
βc 1.70 Kj = 16.10%

c) Kj = Rf +β*(Km-Rf)
Kj = 18.05%