C12
Chapter 12 Spreadsheet Problem Solutions (C12)
1. There are a number of instructions with which you should be familiar
2. A graph that shows the expected EPS and standard deviations using
INPUT DATA: KEY OUTPUT:
Financing alternatives: Using Debt financing:
Stock – Price per share $100 Expected EPS $18.12
Existing L-T debt interest rate 8.00% Standard Deviation $4.31
New L-T debt interest rate 10.00% Expected TIE 10.15
Debt ratio 75.46%
Initial balance sheet data:
Current assets: 900.00
Net fixed assets: 450.00
Accounts payable: 172.50
Total Assets 1,350.00
Total Liabilities & Equity 1,350.00
Initial income statement data:
Sales 2,475.00
EBIT (10% of sales) 247.50
MODEL-GENERATED DATA:
Effects of Financial Leverage
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C12
Analysis if debt financing is used:
Probability 0.4 0.4 0.2
Sales 5,000 7,500 8,500
EBIT 500 750 850
TIE 7.58 11.36 12.88
Expected TIE: 10.15
Analysis if stock financing is used:
EPS 12.03 18.63 21.28
Expected EPS using stock 16.52
Std Deviation of EPS: 3.79
TIE 11.11 16.67 18.89
Expected TIE 14.89
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EPS: Std Deviation
Debt financing 18.12 4.31
Equity financing 16.52 3.79
$12
$14
$16
$18
$20
We have already entered the base case data for each model in this
file, and the models have performed the analysis for preceding parts
of the problem. You will need to enter the data for each of the
remaining parts of the problem–we indicate in each problem the parts
that should be done using the spreadsheet. However, there are several
points worth noting before you go into a model:
1. The input data are entered in specified cells in the INPUT DATA
section. When you change an input item, the model automatically
2. The key output data are displayed to the right of the INPUT DATA
3. Input data items that you can change are distinguished from the
ones you should not change. The items that you can change are
highlighted in color (blue) whereas the other items are printed in black.
4. All percentages must be entered as decimals. Dollars and other
numbers must be entered without dollar signs or commas.
5. Instructions and comments concerning specific models accompany
GENERAL INSTRUCTIONS FOR COMPUTERIZED PROBLEM SOLUTIONS