Ross, Westerfield, Jordan, and Roberts' Spreadsheet Master

Fundamentals of Corporate Finance, 8th Canadian edition

by Brad Jordan and Joe Smolira
Version 10.0

Chapter 2
In these spreadsheets, you will learn how to use the following Excel fu

Cell formatting
Trace Dependents/Precedents
VLOOKUP
Referencing across worksheets

The following conventions are used in these spreadsheets:

1) Given data in blue

2) Calculations in red

NOTE: Some functions used in these spreadsheets may require that

the "Analysis ToolPak" or "Solver Add-In" be installed in Excel.
To install these, click on the File tab
then "Excel Options," "Add-Ins" and select
"Go." Check "Analysis ToolPak" and
"Solver Add-In," then click "OK."
 the following Excel functions:

eadsheets:

equire that
 Chapter 2 - Section 1
Statement of Financial Position

Spreadsheets are a very useful way to do financial calculations. Throughout these spreadsheets, we will use Excel to
the textbook. However, using Excel or any spreadsheet program is not a substitute for understanding the underlying
definitely applies to spreadsheets. You should realize that you do not need to understand these spreadsheets to und
We would recommend that you first read the textbook to understand the concepts before you work through these
through the problems by hand or using a financial calculator. As with most calculations, there are often multiple wa
show one method of solving the problem presented, not necessarily the only way to solve the problem with a sprea

Example 2.1: Building the Statement of Financial Position

RWJ Excel Tip

Throughout these spreadsheets, Excel tips will be highlighted in blue. The tips will range from specific functions to fo
will use is building a basic statement of financial position. Although we could build a financial statement and enter t
preference is to create a column of variables and then refer to these input cells in the statement. We also believe in
calculation cells. In these spreadsheets, if the number is blue, it is an input cell. If the number is red, the cell is a calc

Given the following information, what does the statement of financial position look like? What is shareholders

Current assets: $ 100

Net fixed assets: $ 500
Short-term debt: $ 70
Long-term debt: $ 200

RWJ Excel Tip

In order to make a spreadsheet more presentable, cell formatting is important. To make the numbers in a cell appea
amount, percentage, or other format, select the cells you want to format, right-click, and select the "Format Cells" o
numbers, the font, text color, cell background color, and lots of other options.

Assets Liabilities & Shareholders' Equity

Current assets $ 100 Current liabilities
Fixed assets 500 Long-term debt
Shareholders' equity
Total liabilities and
Total assets $ 600 shareholders' equity
 To calculate the shareholders' equity, realize that total liabilities and shareholders' equity equals both total ass
shareholders' equity. Using these relationships, we can solve for shareholders' equity.

Net working capital = Current assets - Current liabilities

Net working capital = $ 30

Many of the examples in this chapter deal with the fictitious Canadian Enterprises Limited. The statement of financi

RWJ Excel Tip

Note that we will enter the data for the financial statement here, but reference the numbers across different sheets
the balance sheet balances, we will have Excel do the balance sheet calculations for us anyway. For example, total c
number is given in the textbook.

Canadian Enterprises Limited

Statement of Financial Position as of December 31, 2011 and 2012
($ millions)
Assets
2011 2012
Current assets
Cash $ 114 $ 160
Accounts receivable 445 688
Inventory 553 555
Total $ 1,112 $ 1,403

Fixed assets
Net plant and
equipment $ 1,644 $ 1,709

Total assets $ 2,756 $ 3,112

RWJ Excel Tip

In the statement of financial position, select the 2011 cash balance, go to Formulas, and select Trace Dependents. T
2011 total current liabilities. This function draws an arrow to any cell that uses the selected cell in a calculation. If yo
Precedents from the same menu, Excel will draw a line to total current assets and net plant and equipment to total
the cell we selected is using for the calculation in that cell. Both functions are useful for tracing where cells are used
calculation.

We will be using this statement of financial position in future calculations.

Example 2.2: Market versus Book Value

We are given the following information on the Quebec Corporation:

Book value of fixed assets: $ 700

Market value of fixed assets: $ 1,000
Book value of net working capital: $ 400
Market value of net working capital: $ 600
Book value of long-term debt: $ 500
Market value of long-term debt: $ 500

Below we have both the book value and market value balance sheets for the Quebec Corporation.

Quebec Corporation
Statements of Financial Position
Market Value versus Book Value
Assets
Book Market
Net working capital $ 400 $ 600
Net fixed assets 700 1,000

$ 1,100 $ 1,600

RWJ Excel Tip

Notice we used separate input cells for the market value and book value of debt even though the two numbers are
not have to be the same. Using different input cells makes the spreadsheet more versatile.
ese spreadsheets, we will use Excel to perform most of the calculations that are presented in
tute for understanding the underlying calculations. The old adage "Garbage in - Garbage out"
understand these spreadsheets to understand Finance, but it is a useful tool for calculations.
epts before you work through these spreadsheets. It might also be advantageous to work
ulations, there are often multiple ways to arrive at the correct solution. The spreadsheets
way to solve the problem with a spreadsheet.

will range from specific functions to formatting and displaying output. The first application we
uild a financial statement and enter the numbers directly into it, in some cases, our
s in the statement. We also believe in the use of color to differentiate input cells and
. If the number is red, the cell is a calculation or references an input cell.

sition look like? What is shareholders' equity? What is net working capital?

. To make the numbers in a cell appear the way you would like them to, whether a dollar
t-click, and select the "Format Cells" option. This will allow you to change the format of the

Liabilities & Shareholders' Equity

nt liabilities $ 70
term debt 200
eholders' equity 330
liabilities and
eholders' equity $ 600
eholders' equity equals both total assets and current liabilities plus long-term debt plus
ders' equity.

ses Limited. The statement of financial position for the company is below.

e the numbers across different sheets, a very handy tool in Excel. Also, even though we know
ns for us anyway. For example, total current assets will be calculated in Excel even though the

terprises Limited
as of December 31, 2011 and 2012
millions)
Liabilities and Owner's Equity
2011 2012
Current liabilities
Accounts payable $ 232 $ 266
Notes payable 196 123
Total $ 428 $ 389

Long-term debt $ 408 $ 454

Owner's equity
Common stock and
paid-in surplus $ 600 $ 640
Retained earnings 1,320 1,629
Total $ 1,920 $ 2,269

Total liabilities and

owner's equity $ 2,756 $ 3,112
mulas, and select Trace Dependents. This will draw a line from the cash balance cell to the
the selected cell in a calculation. If you go to the total assets cell, and choose Trace
and net plant and equipment to total assets. Tracing precedents allows us to see which cells
useful for tracing where cells are used in future calculations or which cell is used in the current

the Quebec Corporation.

Corporation
Financial Position
versus Book Value
Liabilities and Owner's Equity
Book Market
Long-term debt $ 500 $ 500
Shareholders' equity 600 1,100

$ 1,100 $ 1,600

bt even though the two numbers are the same. While they are the same in this case, they do
re versatile.
 Chapter 2 - Section 2
Statement of Comprehensive Income

The statement of comprehensive income measures performance over time. The statement of comprehensive incom

Tax rate: 40%

Canadian Enterprises
2012 Statement of Comprehensive Income
($ millions)
Net sales $ 1,509
Cost of goods sold 750
Depreciation 65
Earnings before interest and taxes $ 694
Interest paid 70
Taxable income $ 624
Taxes 250
Net income $ 374

Dividends $ 65
Addition to retained earnings 309

We have the tax rate as an input cell. In this way, Excel will calculate the taxes automatically. The dividends are an input cell si

Example 2.3: Calculating Earnings and Dividends per share

Suppose that the shares outstanding for Canadian Enterprises in millions are:

What are the earnings per share and dividends per share?

Earnings per share = Net income / Total shares outstanding =

Dividends per share = Total dividends / Total shares outstanding =
tatement of comprehensive income for Canadian Enterprises is:

ally. The dividends are an input cell since the dividends are at management discretion.

200

$ 1.87
$ 0.325
 Chapter 2 - Section 3
Cash Flow

Now we are ready to calculate the financial cash flows for the fictitious Canadian Enterprises. When we calculate th
calculations from the previous worksheets so we do not have to enter the statement of financial position and statem

RWJ Excel Tip

To reference data in another worksheet, first enter an equal sign in the cell you want the data in, then move the cur
corresponds to the worksheet you want. Go to the cell that contains the desired data, left click your mouse, and pre
click on the appropriate worksheet tab at the bottom of the spreadsheet.

Canadian Enterprises
2012 Operating Cash Flow
Earnings before interest and taxes $ 694
+ Depreciation 65
- Taxes 250
Operating cash flow $ 509

RWJ Excel Tip

Excel will not let you enter a mathematical operator ( = , + , - , etc.) at the beginning of a text cell. However, if you en
will consider anything in the cell as text, not a mathematical operation. This is how we entered the "+" before Depre

Capital spending is the amount a company spends on fixed assets. For Canadian Enterprises, the capital spending wa

Canadian Enterprises
2012 Capital Spending
Ending fixed assets $ 1,709
- Beginning fixed assets 1,644
+ Depreciation 65
Net capital spending $ 130

The change in net working capital is the amount spent on current assets. Net working capital is current assets minus
change in net working capital was:

Canadian Enterprises
2012 Change in Net Working Capital
Ending NWC $ 1,014
 - Beginning NWC 684
Change in NWC $ 330

Now we are ready to calculate the cash flow from assets for Canadian Enterprises. The cash flow from assets is the o
change in NWC. The cash flow from assets is:

Canadian Enterprises
2012 Cash Flow from Assets
Operating cash flow $ 509
- Net capital spending 130
- Change in NWC 330
Cash flow from assets $ 49

The cash flow to creditors is the interest paid minus net new borrowing. Net new borrowing is simply the difference
long-term debt.

Canadian Enterprises
2012 Cash Flow to Creditors
Interest paid $ 70
- Net new borrowing 46
Cash flow to creditors $ 24

The cash flow to stockholders is dividends paid minus net new equity. To find net new equity, we can subtract the b
ending common stock and paid-in surplus. So, the cash flow to stockholders was:

Canadian Enterprises
2012 Cash Flow to Stockholders
Dividends paid $ 65
- Net new equity 40
Cash flow to stockholders $ 25
an Enterprises. When we calculate the cash flows, we are going to reference inputs and
ement of financial position and statement of comprehensive income again.

u want the data in, then move the cursor to the tab at the bottom of the spreadsheet that
ed data, left click your mouse, and press enter. To get back to the current worksheet, simply

nning of a text cell. However, if you enter an apostrophe as the first character in a cell, Excel
how we entered the "+" before Depreciation.

n Enterprises, the capital spending was:

working capital is current assets minus current liabilities. So, for Canadian Enterprises, the
ses. The cash flow from assets is the operating cash flow less the capital spending less the

ew borrowing is simply the difference between the ending long-term debt and the beginning

net new equity, we can subtract the beginning common stock and paid-in surplus from the
as:
 Chapter 2 - Section 4
Taxes

The corporate income tax table currently in effect is:

Taxable
income is But
greater than less
or equal than or equal
to…. to… Tax rate
$ - $ 50,000 15%
50,001 75,000 25%
75,001 100,000 34%
100,001 335,000 39%
335,001 10,000,000 34%
10,000,001 15,000,000 35%
15,000,001 18,333,333 38%
18,333,334 35%
Notice that we entered the minimum and maximum amount for each marginal tax rate in separate columns. Why w
the tax on the next dollar of income. Suppose we have gathered the following information from a company's incom

Taxable income: $ 200,000

Taxes: $ 68,000

The marginal tax rate will be:

Marginal tax rate: 39%

RWJ Excel
answer. Tip we did not enter a value for range_lookup, the default option was to look for the closest number and
Since
income tax rate cell calculation cell to see the syntax we used.
The average tax rate is simply the total taxes divided by the taxable income, or:

Average tax rate: 34.00%

Of course, you could create a spreadsheet to calculate the total tax bill and average tax rate for a given level of taxa
this workbook asks you to create such a spreadsheet.
 tax rate in separate columns. Why we did this we will explain shortly. The marginal tax rate is
information from a company's income statement:

as to look for the closest number and return the value from the column. Click on the marginal
erage tax rate for a given level of taxable income. In fact, the Master it! problem at the end of
Chapter 2 - Master it!

Using Excel to find the marginal tax rate can be accomplished using the VLOOKUP function. However, calculating the total tax bill is a little more diffi
Below we have shown a copy of the IRS tax table for an individual. Often, tax tables are presented in this format.

If taxable
income is But not
over -- over -- The tax is:
$0 $7,825 10% of the amount over $0
7,825 31,850 $782.50 plus 15% of the amount over $7,825
31,850 77,100 $4,386.25 plus 25% of the amount over $31,850
77,100 160,850 $15,698.75 plus 28% of the amount over $77,100
160,850 349,700 $39,148.75 plus 33% of the amount over $160,850
349,700 $101,469.25 plus 35% of the amount over $349,700

In reading this table, the marginal tax rate for taxable income less than $7,825 is 10%. If the taxable income is between $7,825 and $31,850, the tax
$782.50 plus the marginal taxes. The marginal taxes are calculated as the taxable income minus $7,825 times the marginal tax rate of 15%.

Below, we have the tax table as shown in the textbook, as well as a taxable income.

Taxable income: $ 1,350,000

The corporate income tax table currently in effect is:

 Taxable
income is
greater than But
or equal less
to…. than… Tax rate
$ - $ 50,000 15%
50,001 75,000 25%
75,001 100,000 34%
100,001 335,000 39%
335,001 10,000,000 34%
10,000,001 15,000,000 35%
15,000,001 18,333,333 38%
18,333,334 35%

a. Create a tax table for corporate taxes similar to the individual tax table shown above.

b. For a given taxable income, what is the marginal tax rate?

c. For a given taxable income, what is the total tax bill?

d. For a given taxable income, what is the average tax rate?

he total tax bill is a little more difficult.

ween $7,825 and $31,850, the tax bill is

marginal tax rate of 15%.
 Master it! Solution

If taxable
income is But not
a. over -- over -- The tax is:

plus
plus
plus
plus
plus
plus
plus

b. The marginal tax rate is:

c. The total tax bill is:

Tax on the bottom of marginal tax bracket:

Amount of income in marginal tax bracket:
Total tax:

d. The average tax rate is:

of the amount over
of the amount over
of the amount over
of the amount over
of the amount over
of the amount over
of the amount over
of the amount over