CREATING TEXT HISTOGRAMS

Month
January
February
March
April
May
June
July
August
September
October
November
December

Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec

Units Sold
834
1,132
1,243
1,094
902
1,543
1,654
2,123
1,566
1,434
1,321
1,654

Budget
300
300
300
350
350
350
500
500
500
500
500
500

Chart

Actual
311
298
305
351
402
409
421
454
474
521
476
487

Pct. Diff

Under Budget

Exceeded Budget
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec

Timberland Industries December 31 Balance Sheets

(in thousands)
Assets
Cash and cash equivalents
Short-term investments
Accounts Receivable
Inventories
Total current assets
Fixed assets
Total assets
Liabilities and equity
Accounts payable
Accruals
Notes payable
Total current liabilities
Long-term debt
Total liabilities
Common stock
Retained Earnings
Total common equity
Total liabilities and equity

a. The companys sales for 2011 were 455,150, and EBITDA was 15 percen
Further, depreciation amounted to 11% of net fixed assets, interest charge
corporate tax rate was 32%, and Timberland pays 40% of its net income
out in dividends. Given this information, construct Timberlandland's 20
All figures above are in thousands also.

The input information required for the problem is outlined in the "Key Input Da
this data and the balance sheet above, we constructed the income statement show

Key Input Data for Cumberland Industries

Sales Revenue
EBITDA as a percent of sales
Depr. as a % of Fixed Assets
Tax rate
Interest Expense
Dividend Payout Ratio

Sales
Expenses excluding depreciation and amortization
EBITDA
Depreciation (no amortization charges)
EBIT
Interest Expense
EBT
Taxes (40%)
Net Income
Common dividends
Addition to retained earnings

b. Next, construct the firms statement of retained earnings for the year en
then its 2011 statement of cash flows.
Statement of Retained Earnings
(in thousands)
Retained Earnings, Jan 1, 2011
Add: Net Income
Total
Less: Common Dividends

Retained Earnings, Dec 31, 2011

Statement of Cash Flows
Cash Provided/Used by Operating Activities
Net Income after Tax
Add: Depreciation
Net Cash Flow
Increase in A/R
Increase in Inventories
Increase in A/P
Increase in Accruals
Cash Provided/Used by Investing Activities
Increase in Fixed Assets
Cash Provided/Used by Financing Activities
Decrease in Short Term Investments
Increase in Notes Payable
Increase in Common Stock
Increase in Long Term Debt
Payment of Dividend
Add: Cash Balance, Jan 1, 2011
Cash Balance, Dec 31, 2011

c. Calculate net operating working capital, total net operating capital, net o

cash flow, and free cash flow for 2011

Working Capital= CA - CL
NOWC =
Operating CA - Operating CL
Cash+A/R+Invty
A/P=Accrual
Net Operating Working Capital
NOWC11 =
Operating
current
Operating current
assets
liabilities
=
=
233,259
61,238
172,021
NOWC10 =
Operating
current
Operating current
assets
liabilities
=
=
195,134
45,765
149,369
Total Net Operating Capital
TOC11 =
=
NOWC
+
Fixed assets
=
172,021
+
67,165
239,186
TOC10 =
=
NOWC
+
Fixed assets
=
149,369
+
42,436
191,805
Net Operating Profit After Taxes (NO INTEREST)
NOPAT11 =
=
EBIT
x
(1-T)
=
60,884
x
60%
36,531

Operating Cash Flow

OCF11 =
=
NOPAT
+
Depreciation
=
36,531
+
7,388
43,919
Free Cash Flow - free to be distributed to investors after all investments ma
FCF11 =
=
OCF
Gross investment in operating capi
=
43,919
54,769.15
(10,850)
or
FCF11 =
=
=

NOPAT
Net investment in operating capita
36,531
47,381.00
(10,850)
d. Calculate the firms EVA and MVA for 2011. Assume that Laiho had 10
the year-end closing stock price was 17.25 per share, and its after-tax cos
Additional Input Data
Stock price
# of shares (in thousands)
A-T cost of capital
Market Value Added
MVA =
=
Stock price
=
17.25
14,895
Economic Value Added
EVA =
=
NOPAT
=
36,531

17.25
10,000
12%

x
x

# of shares
10,000.00

Operating Capital
239,186

7,828

2011

2010

91,450
11,400
103,365
38,444
244,659
67,165
311,824

74,625
15,100
85,527
34,982
210,234
42,436
252,670

30,761
30,477
16,717
77,955
76,264
154,219
100,000
57,605
157,605
311,824

23,109
22,656
14,217
59,982
63,914
123,896
90,000
38,774
128,774
252,670

16,825
(3,700)
17,838
3,462
34,425
24,729
59,154
0
0
7,652
7,821
2,500
17,973
12,350
30,323
10,000
18,831
28,831
59,154

ITDA was 15 percent of sales. Furthermore,

ssets, interest charges were 8,575, the
% of its net income
Timberlandland's 2011 income statement.

d in the "Key Input Data" section below. Using

income statement shown below.

NIAT
Deprc

Operating
31,386
7,388
(17,838)
(3,462)

7,652
7,821

32,947

455,150
15%
11%
40%
8,575
40%
2011
455,150
386,878
68,273
7,388
60,884
8,575
52,309
20,924
31,386

2010
364,120
321,109
43,011
6,752
36,259
7,829
28,430
11,372
17,058

12,554
18,831

6,823
10,235

nings for the year ending December 31, 2011, and

``
38,774
31,386
70,160
12,554

$5,145
$3,430
$8,575

57,605

31,386
7,388
38,774
(17,838)
(3,462)
7,652
7,821

32,947

(32,117)

3,700
2,500
10,000
12,350
(12,554)

15,995
16,825
74,625
91,450

erating capital, net operating profit after taxes, operating

Net Investment in Operating Capital

47,381

Gross Investment in Operating Capital

54,769

NIAT

Net Cash Flow - NIAT+DEPRC

er all investments made to Operations- via dividends, T/S, Interest, Principal, Inv. In Non -

ment in operating capital

ent in operating capital

me that Laiho had 10 million shares outstanding, that

, and its after-tax cost of capital was 12 percent.

apital

Total common equity

157,605

After-tax cost of capital

12%

Investing

Financing
-12,554
3,700

(32,117)

2,500
12,350
10,000

(32,117)

15,995
16,825
16,825
0

st, Principal, Inv. In Non -oprating asset

Income Statement (Thousands)

Sales
Costs
Operating Profit
Interest Expense
Earnings Before Taxes
Taxes (see below for tax rate)
Net Income

2009
400,000.00
344,000.00
56,000.00
11,678.70
44,321.30
17,728.52
26,592.78

2010
420,000.00
361,994.20
58,005.80
12,262.80
45,743.00
18,297.20
27,445.80

Dividends
Addition to retained earnings

21,200.00
5,392.78

22,300.00
5,145.80

Balance Sheets (Thousands)

Assets
Operating current assets
Total current assets
Net PPE
Total assets

2009
162,000.00
162,000.00
199,000.00
361,000.00

2010
168,000.00
168,000.00
210,042.00
378,042.00

Liabilities and Shareholders' Equity

Operating current liabilities
Total current liabilities
Long-term debt
Total liabilities
Total common equity
Total liabilities and equity

57,911.50
57,911.50
136,253.00
194,164.50
166,835.50
361,000.00

62,999.70
62,999.70
143,061.00
206,060.70
171,981.30
378,042.00

Other Data
Tax rate
Expected growth rate
Weighted average cost of capital (WACC)
Number of shares of stock (000)
FCF Valuation
NOPAT
Operating CA
Operating CL
NOWC
Net PPE
Total net operating capital

40%

40%

2009
33,600.00
162,000.00
57,911.50
104,088.50
199,000.00
303,088.50

2010
34,803.48
168,000.00
62,999.70
105,000.30
210,042.00
315,042.30

Investment in capital
ROIC (beginning capital)
FCF

FCF
Value of operations
Plus the value of non-operating assets
Total value of the corporation
Minus value of debt
Value of equity
Price per share
EVA
EVA based on ROIC

11,953.80
11.48%
22,849.68

2011
441,000.00
374,881.60
66,118.40
12,875.50
53,242.90
21,297.16
31,945.74
23,400.00
8,545.74

2011
176,400.00
176,400.00
220,500.00
396,900.00

66,150.00
66,150.00
150,223.00
216,373.00
180,527.04
396,900.04

40%
5.00%
10.02%
10,000
2011
39,671.04
176,400.00
66,150.00
110,250.00
220,500.00
330,750.00

15,707.70 Net investment in operating capital

12.59% NOPAT/total net operating capital beginning
23,963.34 NOPAT -net investment in operating capital
2011
23,963.34
501,225.24 This is also the horizon value calculation
0 Value of operation=
FCFt +1
501,225.24
(return-growth rate)
216,373.00
=
23963.34(1+5%)
284,852.24
10.02%-5%
28.49
=
25161.51
8,103.80
8,103.80

5.02%
501225.2

gordon model

Strategic planning is one of the core functions of an organization, and it involves the coordination of
plans with financial plans. While operational plans outline how the firm intends to reach its corpora
financial plans outline the manner in which the firm will obtain the necessary productive assets to o
Financial planning generally begins with a sales forecast, and that forecast generally starts with a re
firm's recent history. Here are XYZ Co sales over the past 5 years:

2007
2008
2009
2010
2011

Sales
2,058
2,534
2,472
2,850
3,000
Average =

Annual Growth
Rate
23.1%
-2.4%
15.3%
5.3%
10.3%

THE SALES FORECAST

The first step in a sales forecast are several ways to estimate the historical growth rate, ranging from
simplest are to estimate the average annual growth rate and the compound annual growth rate.
Average annual growth rate =
Compound annual growth rate =

10.3%

future value = present value (1+cag

9.88% fv
pv

Using Regression Analysis via Chart Wizard

Regression or Line of least
squares or line of best fit

The chart shows the regression line. If you actually want the regression intercept and slope, the easi
Wizard to create the INTERCEPT and SLOPE functions, as shown below.

Intercept =

-439,397

Slope =

220

(Using the INTERCEPT function)

(Using the SLOPE function)

You could always use the estimated interecept and slope to project the future sales, but an even easie
function. This allows you to specify the past years and sales, and then specify a projected year. It th
you the projected value. See below for details.

Projected sales for

2011

The compound growth rate is very sensitive to the particular starting and ending dates that are chos

Management started with the regression prediction, then modified it based on qualitative data to
3,300, the forecasted value given in the text. Management's sales forecast represents a growth rate o

We examine a forecasting method for a firm using the percentage of sales of method. This forecastin
on the financial statements are proportional to sales. In particular, it assumes that the following item
Costs; (2) Cash (i.e., the company needs a certain amount of cash on hand, since it does not know ex
deposits will clear the bank); (3) Accounts receivable (the proportion will depend on the firm's credi
plant and equipment (this is reasonable for the long-term; in the short-term, firm's often have exces
this model); (6) Accounts payable; and (7) Accruals. It also assumes that Depreciation is proportion
Other items on the financial statements are a direct result of the firm's financial policies (i.e., divide
policy), which we discuss below.

The next step is to analyze the historical "Pro Forma" ratios. The actual historical statements are
the Pro Forma analysis are shown below the actual statements.
INCOME STATEMENT
(in thousands)
Sales
Costs except depreciation
Depreciation
Total operating costs
EBIT
Less Interest
Earnings before taxes (EBT)
Taxes (40%)
NI before preferred dividends
Preferred dividends
NI available to common
Dividends to common
Add. to retained earnings (DRE)
Shares of common equity
Dividends per share
Price per share

2010

2011

2,850.0
2,497.0
90.0
2,587.0
263.0
60.0
203.0
81.2
121.8
4.0
117.8

3,000.0
2,616.2
100.0
2,716.2
283.8
88.0
195.8
78.3
117.5
4.0
113.5

53.0
64.8

57.5
56.0

50
1.06
26.00

50
1.15
23.00

2010

2011

15.0
65.0
315.0
415.0
810.0
870.0
1,680.0

10.0
0.0
375.0
615.0
1,000.0
1,000.0
2,000.0

2010

2011

30.0
130.0
60.0
220.0

60.0
140.0
110.0
310.0

BALANCE SHEET
(in thousands)
Assets
Cash
ST Investments
Accounts receivable
Inventories
Total current assets
Net plant and equipment
Total assets

Liabilities and equity

Accounts payable
Accruals
Notes payable
Total current liabilities

Long-term bonds
Total liabilities
Preferred stock
Common stock
Retained earnings
Total common equity
Total liabilities and equity

580.0
800.0
40.0
130.0
710.0
840.0
1,680.0

Pro Forma Ratios

Costs / Sales
Depreciation / Net plant & equip.
Cash / Sales
Accounts Rec. / Sales
Inventory / Sales
Net plant & equip. / sales
Accounts Pay. / Sales
Accruals / Sales
Long-term bonds/operating assets

754.0
1,064.0
40.0
130.0
766.0
896.0
2,000.0

Actual
2010

2011

87.6%
10.3%
0.5%
11.1%
14.6%
30.5%
1.1%
4.6%
35.9%

87.2%
10.0%
0.3%
12.5%
20.5%
33.3%
2.0%
4.7%
37.7%

Other Inputs (Assumptions)

Sales Growth Rate
Tax rate
Dividend growth rate
Interest rate on notes payable and short-term investments
Interest rate on long-term bonds
Coupon rate on preferred stock
Stock price
Table 1 XYZ, Inc.: Actual and Projected Income Statements (Thousands)
Actual
Forecast
2011
2012
(1)
1. Sales
3,000.0
10%
2. Costs except depreciation
2,616.2
87.2%
3. Depreciation
100.0
10%
4. Total operating costs
2,716.2
5. EBIT
283.8
6. Less Interest
88.0
carry over from 2011
7. Earnings before taxes (EBT)
195.8

8.
9.
10.
11.

Taxes (40%)
NI before preferred dividends
Preferred dividends
NI available to common

12.
13.
14.
15.

Shares of common equity

Dividends per share
Dividends to common
Add. to retained earnings

78.3
117.5
4.0
113.5
50.0
1.2
57.5
56.0

carry over from 2011

8%

Table 2 XYZ, Inc.: Actual and Projected Balance Sheets (Thousands)

Actual
2011
Forecast
(1)
2012
Assets
1. Cash
10.0
0.33%
2. ST investments
0.0
carry over from 2011
3. Accounts receivable
375.0
12.50%
4. Inventories
615.0
20.50%
5. Total current assets
1,000.0
6. Net plant and equipment
1,000.0
33.33%
7. Total assets
2,000.0

8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.

Liabilities and equity

Accounts payable
Accruals
Notes payable
Total current liabilities
Long-term bonds
Total liabilities
Preferred stock
Common stock
Retained earnings
Total common equity
Total liabilities and equity

60.0
140.0
110.0
310.0
754.0
1,064.0
40.0
130.0
766.0
896.0
2,000.0

2.00%
4.67%
carry over from 2011
carry over from 2011
carry over from 2011
carry over from 2011
addition to RE

a
19. Required assets
b
20. Specified sources of financing
21. Additional funds needed (AFN)

Amount of New Capital:

Percent

Amount (000)

Notes Payable
Long-term bonds
Preferred Stock
Common Stock

25%
25%
0%
50%
100%

27.9
27.9
0.0
55.7
111.4

Required assets include all forecasted operating assets plus the short-term investments fro

Specified sources of financing include forecasted operating current liabilities, forecasted

forecasted preferred stock, forecasted common equity, and the amount of notes payable fr

involves the coordination of operating

m intends to reach its corporate objectives,
essary productive assets to operate.
ast generally starts with a review of the

3,500
y = 220x - 439397
R = 0.9038

3,000
2,500

23.1%
-2.4%
15.3%
5.3%
10.3%

2058.00
2261.33
2484.75
2730.25
3000.00

203.33
223.42
245.50
269.75

2,000
1,500
1,000
500

cal growth rate, ranging from the simple to the complicated. The0
und annual growth rate.
2006

value = present value (1+cagr) t (raise to time)

9.88% ^ -= raise
9.88% array formula

2007

2008

2009

2010

2011

2012

n intercept and slope, the easiest way is to use the function

ow.

EPT function)

SALES
EQUATION
SALES = 220 YEAR - 439397
SLOPE
2012
2013
2014

220 INTERCEPT
-439397
3243
3463
3683

3243
3463
3683

uture sales, but an even easier way is to use the TREND

pecify a projected year. It then fits the regression line and gives

(Using the TREND function)

nd ending dates that are chosen. One way to smooth this out is to

sed on qualitative data to

st represents a growth rate of 10%.

es of method. This forecasting method assumes that many items

ssumes that the following items are proportional to sales: (1)
nd, since it does not know exactly when the checks it writes or
ill depend on the firm's credit policy; (4) Inventories; (5) Net
erm, firm's often have excess capacity, which we discuss later in
at Depreciation is proportional to Net plant and equipment.
financial policies (i.e., dividend policy and capital structure

ual historical statements are shown below. The ratios needed for
below the actual statements.
Percentage of Sales Method
Common Size statements
2010
2011
100.00%
87.61%
3.16%
90.77%
9.23%
2.11%
7.12%
2.85%
4.27%
0.14%
4.13%

100.00%
87.21%
3.33%
90.54%
9.46%
2.93%
6.53%
2.61%
3.92%
0.13%
3.78%

Common size statements

2010

2011

0.9%
3.9%
18.8%
24.7%
48.2%
51.8%
100.0%

0.5%
0.0%
18.8%
30.8%
50.0%
50.0%
100.0%

2010

2011

1.8%
7.7%
3.6%
13.1%

3.0%
7.0%
5.5%
15.5%

34.5%
47.6%
2.4%
7.7%
42.3%
50.0%
100.0%

Historical
Average
87.4%
10.2%
0.4%
11.8%
17.5%
31.9%
1.5%
4.6%
36.8%

37.7%
53.2%
2.0%
6.5%
38.3%
44.8%
100.0%

Nave Forecast (based on latest data)

Preliminary
Industry
Forecast
Composite
2012
87.1%
10.2%
1.0%
10.0%
11.1%
33.3%
1.0%
2.0%
30.9%

87.2%
10.0%
0.3%
12.5%
20.5%
33.3%
2.0%
4.7%
37.7%

10%
40%
8%
8%
10%
10%
23

Forecast

Adjustments

Final Forecast

2012

2011 sales
3,300
2012 sales
2,878
2012 net plant & equipt110
2,988
312
rry over from 2011
88
224

3,300.0
2,877.6
110.0
2,987.6
312.4

90
135
4
131

rry over from 2011

50.0
1.2
62.1
68.54

2011 Dividends

Forecast

Adjustments

Final Forecast

2012

2012 sales
rry over from 2011
2012 sales
2012 sales
2012 sales

2012 sales
2012 sales
rry over from 2011

rry over from 2011

rry over from 2011

rry over from 2011
addition to RE

11.0
0.0
412.5
676.5
1,100.0
1,100.0
2,200.0

11.0
0.0
412.5
676.5
1100.0
1100.0
2200.0

66.0
154.0
110.0
330.0
754.0
1,084.0
40.0
130.0
834.5
964.5
2,088.5

66.0
154.0
137.9
357.9
781.9
1139.7
40.0
185.7
834.5
1020.3
2200.0

2,200.0
2,088.5
111.4

Interest rate

27.9
27.9

55.7

8%
10%
`

e short-term investments from the previous year.

urrent liabilities, forecasted long-term bonds,

e amount of notes payable from the previous year.

Series1
Linear (Series1)
Linear (Series1)

2012

INCOME STATEMENT
(in thousands)
Sales
Costs except depreciation
Depreciation
Total operating costs
EBIT
Less Interest
Earnings before taxes (EBT)
Taxes (40%)
NI before preferred dividends
Preferred dividends
NI available to common
Dividends to common
Add. to retained earnings (DRE)
Shares of common equity
Dividends per share
Price per share

2010
2,850.00
2,497.00
90.00
2,587.00
263.00
60.00
203.00
81.20
121.80
4.00
117.80
53.00
64.80
50
1.1
26.0

BALANCE SHEET
(in thousands)
2010
Assets
Cash
ST Investments
Accounts receivable
Inventories
Total current assets
Net plant and equipment
Total assets

15.0
65.0
315.0
415.0
810.0
870.0
1,680.0
2010

Liabilities and equity

Accounts payable
Accruals
Notes payable
Total current liabilities
Long-term bonds
Total liabilities
Preferred stock
Common stock
Retained earnings
Total common equity
Total liabilities and equity

30.0
130.0
60.0
220.0
580.0
800.0
40.0
130.0
710.0
840.0
1,680.0

Pro Forma Ratios

Actual
2010

Costs / Sales
Depreciation / Net plant & equip.
Cash / Sales
Accounts Rec. / Sales
Inventory / Sales
Net plant & equip. / sales
Accounts Pay. / Sales
Accruals / Sales
Long-term bonds/operating assets

87.6%
10.3%
0.5%
11.1%
14.6%
30.5%
1.1%
4.6%
35.9%

Other Inputs
Sales Growth Rate
Tax rate
Dividend growth rate
Interest rate on notes payable and short-term investments
Interest rate on long-term bonds
Coupon rate on preferred stock
Funds raised as notes payable
Funds raised as long-term debt
Funds raised as preferred stock

Funds raised as new common stock

MicroDrive, Inc.: Actual and Projected Income Statements (Millions)

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.

Sales
Costs except depreciation
Depreciation
Total operating costs
EBIT
Less Interest
Earnings before taxes (EBT)
Taxes (40%)
NI before preferred dividends
Preferred dividends
NI available to common

12.
13.
14.
15.

Shares of common equity

Dividends per share
Dividends to common
Add. to retained earnings

Actual
2011
(1)
3,000.0
2,616.2
100.0
2,716.2
283.8
88.0
195.8
78.3
117.5
4.0
113.5
50.0
1.2
57.5
56.0

MicroDrive, Inc.: Actual and First Pass Projected Balance Sheets (Thousands)

Actual
2011
(1)
1.
2.
3.
4.

Assets
Cash
ST investments
Accounts receivable
Inventories

10.0
0.0
375.0
615.0

5. Total current assets

6. Net plant and equipment
7. Total assets

8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.

1,000.0
1,000.0
2,000.0

Liabilities and equity

Accounts payable
Accruals
Notes payable
Total current liabilities
Long-term bonds
Total liabilities
Preferred stock
Common stock
Retained earnings
Total common equity
Total liabilities and equity

60.0
140.0
110.0
310.0
754.0
1,064.0
40.0
130.0
766.0
896.0
2,000.0

19. Required operating assets

20. Specified sources of financing
21. Additional funds needed (AFN)
HOW THE AFN WILL BE RAISED:
Notes payable
Long-term debt
Preferred stock
Common stock
Total

Note: if the AFN is negative, then the firm has more than it needs to finance the assets. It coul
by paying off debt, buying back stock, or paying a larger dividend. Instead, we assume the fir
funds to purchase additional short-term investments.
New short-term investments =

New shares of stock

New equity issued =

56.9

Stock price =
# new shares issued =

$23.00
2.473

Percentage of Sales Method

2011
3,000.00
2,616.20
100.00
2,716.20
283.80
88.00
195.80
78.32
117.48
4.00
113.48

Common Size statements

2010
2011
100.00%

100.00%

87.61%

87.21%

3.16%

3.33%

90.77%

90.54%

9.23%

9.46%

2.11%

2.93%

7.12%

6.53%

2.85%

2.61%

4.27%

3.92%

0.14%
4.13%

0.13%
3.78%

57.50
55.98
50
1.2
23.0
Common size statements

2011

2010

2011

10.0
0.0
375.0
615.0
1,000.0
1,000.0
2,000.0

0.9%
3.9%
18.8%
24.7%
48.2%
51.8%
100.0%

0.5%
0.0%
18.8%
30.8%
50.0%
50.0%
100.0%

2011

2010

2011

60.0
140.0
110.0
310.0
754.0
1,064.0
40.0
130.0
766.0
896.0
2,000.0
Actual

nvestments

1.8%
7.7%
3.6%
13.1%
34.5%
47.6%
2.4%
7.7%
42.3%
50.0%
100.0%

2011

Historical
Average

Industry
Composite

87.2%
10.0%
0.3%
12.5%
20.5%
33.3%
2.0%
4.7%
37.7%

87.4%
10.2%
0.4%
11.8%
17.5%
31.9%
1.5%
4.6%
36.8%

87.1%
10.2%
1.0%
10.0%
11.1%
33.3%
1.0%
2.0%
30.9%

10%
40%
8%
8.0%
10.0%
10%
25%
25%
0%

3.0%
7.0%
5.5%
15.5%
37.7%
53.2%
2.0%
6.5%
38.3%
44.8%
100.0%
Preliminary
Forecast
2012
87.2%
10.0%
0.3%
12.5%
20.5%
33.3%
2.0%
4.7%
37.7%

50%

Forecast
Basis
(2)
10% 2011 Sales
87.2% 2012 sales
10% 2012 NPE

10% of average

8% 2011 DPS

Forecast
2012
(3)
3,300.00
2,877.60
110.00
2,987.60
312.40
86.76
225.64
90.26
135.38
4.00
131.38
52.47
1.24
65.17
66.21

ets (Thousands)

Forecast
(2)

Basis

0.3% 2012 Sales

12.50% 2012 Sales
20.50% 2012 Sales

Forecast
2,012.00
(3)
11.0
412.5
676.5

33.33% 2012 Sales

2.00% 2012 Sales

4.67% 2012 Sales

1,100.0
1,100.0
2,200.0

66.0
154.0
138.4
358.4
782.4
1,140.9
40.0
186.9
832.2
1,019.1
2,200.0
2,200.0
2,086.2
113.8

25%
25%
0%
50%

28.4
28.4
56.9

ds to finance the assets. It could reduce its financing

end. Instead, we assume the firm will use any extra

ABC has projected the following sales for the first eight months of 2012 as follows:
Jan
Feb
Mar
Apr

100,000
120,000
150,000
300,000

May
Jun
Jul
Aug

275,000
200,000
200,000
180,000

ABC collects 20% of sales in the month of the sale, 50% in the month following, and the remaining 30%,
two months following the sale. During November and December 2011, sales were 220,000 and 175,000 respect

ABC purchases raw materials two months in advance of its sales equal to 65% of its final sales. The supplier is p
one month after delivery. Thus purchases for April sales are made in February and payment made in March.

In addition, ABC pays 10,000 per month for rent and 20,000 each month for other expenditures. Tax prepaymen
22,500 are made each quarter beginning in March. The company's cash balance as of Dec 31, 2011 was 22,000.
A minimum balance of 20,000 must be maintained at all times to satisfy the bank's line of credit agreement.

ABC has arranged for a short term credit with its bank at an interest rate of 12% p.a. (1% per month) to be paid
Borrowing to meet estimated monthly cash needs takes place at the end of the month, and interest is not paid
end of the following month. Consequently, if the firm were to borrow 50,000 during the month of April, then it
500 in interest during May. Finally, ABC follows a policy of repaying its outstanding short-term debt in any mon
its cash balance exceeds the minimum cash balance of 20,000.

a) What will be the cash requirement for the next 6 months so that it can renegotiate the terms of a short-term
arrangement with its bank, if necessary. To evaluate the problem, ABC plans to evaluate the impact of a +/- 20%
in its monthly sales efforts. Prepare a 6-month cash budget and use it to evaluate the firm's cash requirements.
b) ABC has a note due in June. Will the firm have sufficient cash to repay the loan?

ABC Company Cash Budget

Minimum Cash Balance
Beginning Cash Balance

Jan
Feb
Mar
Apr
Collection
1st Month
2nd Month
3rd Month

May
Jun
Jul
Aug

Purchases disb
% of Sales
Interest rate

Cash Budget for January to June, 2012

Nov
Sales
Collections:
1st month
2nd month
3rd month
Total Collections
Purchases
Payments
Receipts
Disbursements
Payment for purchases
Rent
Other expenditures
Tax deposits
Interest on S-T
Total Disbursements
Net Monthly Change
Analysis of Borrowing Needs
Beginning Cash Balance
Ending Cash (Unadjusted)
Borrowing
Loan Repayment
Ending Cash (Adjusted)
Cumulative Borrowing

Dec

Jan

Feb

nd the remaining 30%,

e 220,000 and 175,000 respectively.

its final sales. The supplier is paid

d payment made in March.

r expenditures. Tax prepayments of

as of Dec 31, 2011 was 22,000.
k's line of credit agreement.

p.a. (1% per month) to be paid monthly.

month, and interest is not paid until the
ring the month of April, then it would pay
ng short-term debt in any month in which

tiate the terms of a short-term credit

valuate the impact of a +/- 20% variation
e the firm's cash requirements.

Mar

Apr

May

Jun

Jul

Aug

We fill this up last

TIME VALUE OF MONEY PROBLEMS USING SPECIAL FUNCTIONS IN EXCEL:

1) Calculate the Future Value given the following:

Present Value
Years
Rate
Future Value (Formula)
Future Value (Excel Ftn)

15,000.00
2
12%
18,816.00

fv=pv(1+r)

(18,816.00)

2) Calculate the Present Value given the following:

Future Value
500,000.00
Years
5
Rate
10%
Present Value (Formula)
Present Value (Excel Ftn)
(310,460.66)

3) How much is the annuity payment given the following:

Present Value
0
Future Value
10,000.00
Number of Payments
5
Interest Rate
4%
Annual Payment
-$1,846.27

4) Determine the number of periods given the following:

Present Value
0
Future Value
10,000.00
Annual Payment
1,846.27
Annual Rate
4.00%
Number of Years
5.00

5) Determine the interest rate given the following:

Present Value
(10,500.00)
Future Value
0.00
Annual Payment
1,500.00
Number of Years
10
Annual Rate
7.07%

6) Present Value and Future Value of an uneven stream of cash flows

Year
1
2
3
4
5
Interest Rate
Present Value
Future Value

Cash Flow
1,000.00
2,000.00
3,000.00
4,000.00
5,000.00
11.00%
10,319.90
(17,389.63)

PV
(900.90)
(1,623.24)
(2,193.57)
(2,634.92)
(2,967.26)
(10,319.90)

Present value of cash inflows - present value of cash outflows

Non-Annual Compounding Worksheet
Investment
1,000,000.00
Simple Rate
10.00%
Periods per Year
1
Term (Years)
1
Future Value
(1,100,000.00)

Investment
Simple Rate
Periods per Year
Term (Years)
Future Value

1,000,000.00
10.00%
2
1
($1,102,500.00)

Investment
Simple Rate
Periods per Year
Term (Years)
Future Value

1,000,000.00
10.00%
12
1

Non-Annual Compounding Periods

Present Value
1,000,000.00
Annual Rate
10.00%
Frequency
Periods/Year
FV
Annual
1
1,100,000.00
Semiannual
2
1,102,500.00
Quarterly
4
1,103,812.89
Bi-monthly
6
1,104,260.42
Monthly
12
1,104,713.07
Bi-weekly
26
1,104,958.95

Weekly
Daily
Continuous

52
365
Infinite

1,105,064.79
1,105,155.78
1,105,170.92

UNCTIONS IN EXCEL:

AMORTIZATION SCHEDULE
Prepare a Monthly amortization schedule for a house loan from pag-ibig given the following data
LOAN AMORTIZATION SCHEDULE
Loan Principal
691,170.65
Annual rate of interest
10.0000%
Periods/year
12
Number of years
10
Monthly payment
9,133.87
Method 1
Month
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29

Interest

Principal

5,759.76
5,731.64
5,703.29
5,674.70
5,645.87
5,616.80
5,587.50
5,557.94
5,528.14
5,498.10
5,467.80
5,437.25
5,406.44
5,375.38
5,344.06
5,312.48
5,280.63
5,248.52
5,216.14
5,183.50
5,150.58
5,117.38
5,083.91
5,050.16
5,016.13
4,981.82
4,947.22
4,912.33
4,877.15

3,374.12
3,402.23
3,430.59
3,459.17
3,488.00
3,517.07
3,546.38
3,575.93
3,605.73
3,635.78
3,666.07
3,696.62
3,727.43
3,758.49
3,789.81
3,821.39
3,853.24
3,885.35
3,917.73
3,950.38
3,983.29
4,016.49
4,049.96
4,083.71
4,117.74
4,152.05
4,186.66
4,221.54
4,256.72

Year-end
Principal
691,170.65
687,796.53
684,394.30
680,963.72
677,504.54
674,016.54
670,499.48
666,953.10
663,377.17
659,771.44
656,135.67
652,469.59
648,772.97
645,045.54
641,287.05
637,497.24
633,675.84
629,822.60
625,937.25
622,019.53
618,069.15
614,085.86
610,069.37
606,019.41
601,935.70
597,817.96
593,665.90
589,479.25
585,257.70
581,000.98

30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73

4,841.67
4,805.91
4,769.84
4,733.47
4,696.80
4,659.83
4,622.54
4,584.95
4,547.04
4,508.82
4,470.28
4,431.41
4,392.23
4,352.71
4,312.87
4,272.69
4,232.18
4,191.34
4,150.15
4,108.62
4,066.74
4,024.51
3,981.94
3,939.00
3,895.71
3,852.06
3,808.05
3,763.67
3,718.91
3,673.79
3,628.29
3,582.41
3,536.15
3,489.50
3,442.46
3,395.03
3,347.21
3,298.99
3,250.36
3,201.33
3,151.90
3,102.05
3,051.78
3,001.10

4,292.20
4,327.96
4,364.03
4,400.40
4,437.07
4,474.04
4,511.33
4,548.92
4,586.83
4,625.05
4,663.59
4,702.46
4,741.65
4,781.16
4,821.00
4,861.18
4,901.69
4,942.53
4,983.72
5,025.25
5,067.13
5,109.36
5,151.93
5,194.87
5,238.16
5,281.81
5,325.82
5,370.21
5,414.96
5,460.08
5,505.58
5,551.46
5,597.72
5,644.37
5,691.41
5,738.84
5,786.66
5,834.88
5,883.51
5,932.54
5,981.97
6,031.82
6,082.09
6,132.77

576,708.78
572,380.82
568,016.79
563,616.39
559,179.32
554,705.28
550,193.95
545,645.03
541,058.20
536,433.15
531,769.56
527,067.10
522,325.45
517,544.29
512,723.29
507,862.11
502,960.43
498,017.89
493,034.17
488,008.92
482,941.79
477,832.43
472,680.50
467,485.63
462,247.47
456,965.66
451,639.84
446,269.63
440,854.68
435,394.60
429,889.01
424,337.55
418,739.83
413,095.45
407,404.04
401,665.21
395,878.55
390,043.66
384,160.15
378,227.62
372,245.64
366,213.82
360,131.73
353,998.96

74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117

2,949.99
2,898.46
2,846.50
2,794.10
2,741.27
2,688.00
2,634.28
2,580.12
2,525.51
2,470.44
2,414.91
2,358.92
2,302.46
2,245.53
2,188.13
2,130.25
2,071.88
2,013.03
1,953.69
1,893.86
1,833.52
1,772.69
1,711.34
1,649.49
1,587.12
1,524.23
1,460.82
1,396.87
1,332.40
1,267.39
1,201.83
1,135.73
1,069.08
1,001.88
934.11
865.78
796.88
727.40
657.35
586.71
515.48
443.66
371.25
298.22

6,183.88
6,235.41
6,287.37
6,339.77
6,392.60
6,445.87
6,499.59
6,553.75
6,608.37
6,663.43
6,718.96
6,774.95
6,831.41
6,888.34
6,945.74
7,003.63
7,061.99
7,120.84
7,180.18
7,240.01
7,300.35
7,361.18
7,422.53
7,484.38
7,546.75
7,609.64
7,673.05
7,737.00
7,801.47
7,866.48
7,932.04
7,998.14
8,064.79
8,132.00
8,199.76
8,268.09
8,336.99
8,406.47
8,476.52
8,547.16
8,618.39
8,690.21
8,762.63
8,835.65

347,815.08
341,579.67
335,292.29
328,952.52
322,559.92
316,114.05
309,614.46
303,060.71
296,452.35
289,788.91
283,069.95
276,295.00
269,463.58
262,575.24
255,629.50
248,625.87
241,563.88
234,443.04
227,262.87
220,022.85
212,722.50
205,361.32
197,938.79
190,454.41
182,907.66
175,298.02
167,624.97
159,887.97
152,086.50
144,220.02
136,287.98
128,289.84
120,225.05
112,093.06
103,893.29
95,625.20
87,288.21
78,881.74
70,405.21
61,858.05
53,239.66
44,549.46
35,786.83
26,951.18

118
119
120

224.59
150.35
75.49

8,909.28
8,983.52
9,058.38

18,041.91
9,058.38
0.00

286,750.63

261,281.64

1) How much is the monthly amortization payment

2) How much interest is paid on the 2nd month
3) How much is the principal payment on the 18th month
4) How much is the cumulative interest payment for
the whole of 2nd year
5) How much is the cumulative principal payment for
the whole of the 4th year
6) What is the total interest payment
7) What is the total principal payment

he following data

Excel functions
-5,731.64
-3,885.35
-62,769.18

CAPITAL BUDGETING

A company must decide whether to introduce a new product line. The new product
have startup costs, operational costs, and incoming cash flows over six years. This
project will have an immediate (t=0) cash outflow of 1,000,000 (which include
machinery, and employee training costs). Other cash outflows for years 1
expected to be 20,000 for the first year, increasing by 2,000 for the next five years .
Cash inflows are expected to be 350,000 for Year 1, followed by 320,000, 350,000,
200,000, 210,000 and 100,000 respectively for the next five years. All cash flows ar
after-tax, and there are no cash flows expected after year 6. The required rate of re
is 10%. Determine the Net Present Value and the Internal rate of return of the proje

Required Return
Period
0
1
2
3
4
5
6

10%

Ouflow
(1,000,000.00)
(20,000.00)
(22,000.00)
(24,000.00)
(26,000.00)
(28,000.00)
(30,000.00)

Inflow
350,000.00
320,000.00
350,000.00
200,000.00
210,000.00
100,000.00
NPV
IRR

2)

NPV vs IRR
Required Return
PERIOD
0
1
2
3
4
5

12%
PROJECT A
(1,000,000.00)
0.00
200,000.00
300,000.00
500,000.00
900,000.00

PROJECT B
(1,000,000.00)
400,000.00
400,000.00
300,000.00
300,000.00
200,000.00

Net Cash Flow

(1,000,000.00)
330,000.00
298,000.00
326,000.00
174,000.00
182,000.00
70,000.00
62,574.81
12.58%

NPV
IRR

201,416.06
17%
16.19%

193,695.28
20%
16.04%

b) MIRR
PERIOD
0
1
2
3
4
5
IRR
CAGR

(6,260.00)
24,248.00
24,248.00
24,248.00
24,248.00
42,248.00
388%

MIRR

3)
Project
A
B
C
D
E
F
G
H
I
J
K
L
M

Capital Rationing
Cost
237,005
766,496
304,049
565,178
108,990
89,135
795,664
814,493
480,321
826,610
734,830
910,598
978,621
4,919,171
5,000,000.00
TOTAL NPV

NPV
84,334
26,881
23,162
82,598
20,590
90,404
18,163
97,682
52,063
53,911
56,323
88,349
69,352
80,829
641,695

Include
1
0
0
1
1
1
0
1
1
0
1
1
1

4) PROJECTS WITH UNEQUAL LIVES

Rank the following projects according to the most to the least preferred:
Required return
A
Cash Flow
(9,200)
17,000
17,000
17,000
17,000
17,000
17,000

Time
0
1
2
3
4
5
6
7
8
NPV
PVIFA
ANPV

5)

Investment Opportunity Schedule

Cost
A
B
C
D
E
F
G
H
I
J

60,693.92
4.11
14,762.32

74,950
138,298
146,661
189,921
201,843
271,477
396,209
407,769
439,207
445,529

IRR
13.00%
11.48%
12.19%
13.82%
11.69%
15.38%
16.16%
16.51%
15.87%
15.02%

12%
B
Cash Flow
(6,500)
20,000
30,000
40,000
50,000

95,520.07
3.04
31,448.50

C
Cash Flow
(10,050)
30,000
30,000
30,000
30,000
30,000

98,093.29
3.60
27,212.03

t line. The new product will

ws over six years. This
00 (which include
ws for years 16 are
for the next five years .
by 320,000, 350,000,
All cash flows are
required rate of return
e of return of the project.

if positive acceptable
higher than required return-acceptable

D
Cash Flow
(12,500)
24,000
25,000
26,000
28,000
30,000
31,000
32,000
34,000
126,094.79
4.97
25,383.24

VERTICAL LOOKUP, HORIZONTAL LOOKUP, INDEX and MATCH

1) Using Vertical Lookup to look for data in a given array

Enter a name -->

Last Name
Baslig

First Name
Nancy

Department
Operations

Last Name
Abad
Baslig
Bolante
Candido
Collado
Dionisio
Donato
Escalon
Edralin

First Name
Yolanda
Nancy
Ken
Larry
Moe
Rita
James
Pamela
Paul

Department
Sales
Operations
Marketing
Administration
Administration
Administration
Operations
Data Processing
Data Processing

Enter Income:
The Rate is:

45,500
31.00% (Vlookup)

31.00% (Lookup)

ID
3432

ID
4466
3432
4422
2822
1231
2604
3983
2144
1102

Income is
But Less Than
Greater Than or
or Equal To
Equal To
0
2,650
2,651
27,300
27,301
58,500
58,501
131,800
131,801
284,700
284,701

Date Hired
4/16/2003

Date Hired
3/5/1998
4/16/2003
12/1/2004
9/16/1999
3/12/2001
4/15/2005
2/9/2000
3/24/2004
11/12/2003

Rate
15.00%
28.00%
31.00%
36.00%
39.60%
45.25%

2) Using Horizontal Lookup

Enter Income:
The Tax Rate is:

3) Using INDEX and MATCH

21,566
28.00%

Income is
Greater Than or
Equal To
But Less Than
Rate

2,651

2,650

27,300

15.00%

28.00%

Date:
Amount:

1/12/2007
189

189

Date

1/1/2007
1/2/2007
1/3/2007
1/4/2007
1/5/2007
1/6/2007
1/7/2007
1/8/2007
1/9/2007
1/10/2007
1/11/2007
1/12/2007
1/13/2007
1/14/2007
1/15/2007
1/16/2007
1/17/2007
1/18/2007
1/19/2007
1/20/2007

Weekday

Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
Sunday
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
Sunday
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday

Amount

23
179
149
196
131
179
134
179
193
191
176
189
163
121
100
109
151
138
114
156

4) Comparison of the 3
Value:

James

LOOKUP:
VLOOKUP:
MATCH & INDEX

300
300
300

Name

Amount

Bob
Ellen
Froilan
James
Jessica
John
Teddy
Jun
Eric
Jazz

50
25
200
300
400
100
150
240
245
346

January
February
March
April
May
June
July

Product 1
2,892
3,380
3,744
3,221
4,839
3,767
5,467

5) TWO-WAY Lookup
Month:
Product:
Month Offset (Row #):
Product Offset (Col #):
Sales:

April
Product 2
5
3
2,438

Product 2
1,771
4,711
3,223
2,438
1,999
5,140
3,337

Single-formula -->

2,438

August
September
October
November
December
Total

3,154
1,718
1,548
5,083
5,753
44,566

4,895
2,040
1,061
3,558
2,839
37,012

27,301

58,501

131,801

58,500

131,800

284,700

31.00%

36.00%

39.60%

284,701

45.25%

Product 3
4,718
2,615
5,312
1,108
1,994
3,830
3,232

Combined
9,381
10,706
12,279
6,767
8,832
12,737
12,036

1,607
1,563
2,590
3,960
3,013
35,542

9,656
5,321
5,199
12,601
11,605
117,120

WORKING WITH ARRAY FORMULAS 1

1) Using an array formula to eliminate intermediate formulas

Product

Widgets
Ridgets
Lidgets
Kidgets
Fidgets
Zidgets

Units Sold

Unit Price

3
10
5
9
3
1

50
100
20
10
60
200

Normal Calcs

150
1,000
100
90
180
200
1,720 (SUM formula)
1,720 (SUMPRODUCT Formula)
1,720 (Single array formula)

2) Conditional Sum Example with an Array

Find the total of sales made by salesperson Sanchez

Name

Sale

Sanchez
Jones
Santos
Reyes
Aguila
Fortes
Jordan
Milanes
Sanchez
Wong
Evangelista
Sanchez
Fortes
Sanchez

880
350
441
280
385
281
300
250
201
398
440
595
560
220

Excel built-in function: The SumIF method

1,896

The array formula method

1,896

Row Labels
Sanchez
Grand Total

Sum of Sale
1896
1896

3) An array formula: Calculate a single result

Use array formulas to find the average revenue for all divisions in both sales areas.
2010
Sales
Product 1

NCR
Calabarzon

161,000
198,200

Product X
NCR
Calabarzon

35,000
60,000

Product X
NCR
35,000
Calabarzon
60,000
Add this new data into the mix.
The array formula handles it.
The average function doesn't.

Product 2

NCR
Calabarzon

160,700
190,100

Product 3

NCR
Calabarzon

153,900
190,700
AVE Function

Average NCR
Average Calabarzon

158,533
193,000

ARRAY

127,650
159,750

umIF method

WORKING WITH ARRAY FORMULAS 2

Example: SUM and Nested Ifs in an Array Formula

Find the sum of sales for a particular state and a particular beer type.
Determine the following:
a) Total sales from Oregon of Amber Ale beer
b) Total sales from California Pale Ale
c) Total 2008 sales of Ted of Pilsner from Wahington
d) Average sales of Stout from Wahington in 2008
e) Average sales of Deb in Winter for the past three years
Sample:
Washington, Amber Ale:

Season
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Spring
Spring
Spring
Spring
Spring
Spring
Spring
Spring

YearSales
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008

6,674,005

6,674,005

Type
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen

State
California
California
California
California
California
California
Oregon
Oregon
Oregon
Oregon
Oregon
Oregon
Washington
Washington
Washington
Washington
Washington
Washington
California
California
California
California
California
California
Oregon
Oregon

Sales_Beer
554,536
540,643
577,548
455,905
490,871
446,383
457,726
347,696
384,541
386,420
370,970
430,754
500,847
507,070
482,346
608,713
150,000
500,649
545,780
440,644
580,359
536,225
414,908
377,997
331,289
384,572

Salesman
Ted
Deb
Ted
Jun
Jun
Deb
Ted
Jun
Kate
Ted
Kyle
Deb
Jun
Jun
Ted
Kate
Kate
Ted
Kate
Deb
Kate
Kyle
Ted
Jun
Kate
Kate

Spring
Spring
Spring
Spring
Spring
Spring
Spring
Spring
Spring
Spring
Summer
Summer
Summer
Summer
Summer
Summer
Summer
Summer
Summer
Summer
Summer
Summer
Summer
Summer
Summer
Summer
Summer
Summer
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Fall

2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2009

Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale

Oregon
Oregon
Oregon
Oregon
Washington
Washington
Washington
Washington
Washington
Washington
California
California
California
California
California
California
Oregon
Oregon
Oregon
Oregon
Oregon
Oregon
Washington
Washington
Washington
Washington
Washington
Washington
California
California
California
California
California
California
Oregon
Oregon
Oregon
Oregon
Oregon
Oregon
Washington
Washington
Washington
Washington
Washington
Washington
California

365,813
396,338
453,761
356,538
606,332
535,218
493,364
559,100
220,350
476,975
545,621
489,255
523,124
612,216
425,562
485,285
467,173
447,637
407,542
449,575
403,248
449,293
493,845
523,464
575,692
568,633
100,250
487,012
519,177
488,597
456,653
528,843
420,782
439,751
348,503
352,086
336,824
350,924
338,334
383,738
508,939
393,294
430,380
390,741
118,030
522,282
514,649

Deb
Jun
Kate
Ted
Deb
Jun
Kate
Kate
Ted
Ted
Kate
Jun
Ted
Jun
Jun
Jun
Kate
Ted
Jun
Kate
Deb
Jun
Jun
Jun
Deb
Kate
Jun
Kate
Ted
Ted
Ted
Ted
Kate
Ted
Kate
Jun
Deb
Kate
Kate
Ted
Ted
Ted
Kate
Ted
Jun
Deb
Ted

Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Spring
Spring
Spring
Spring
Spring
Spring
Spring
Spring
Spring
Spring
Spring
Spring
Spring
Spring
Spring
Spring
Spring
Spring
Summer
Summer
Summer
Summer
Summer
Summer
Summer
Summer
Summer
Summer
Summer
Summer

2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009

Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout

California
California
California
California
California
Oregon
Oregon
Oregon
Oregon
Oregon
Oregon
Washington
Washington
Washington
Washington
Washington
Washington
California
California
California
California
California
California
Oregon
Oregon
Oregon
Oregon
Oregon
Oregon
Washington
Washington
Washington
Washington
Washington
Washington
California
California
California
California
California
California
Oregon
Oregon
Oregon
Oregon
Oregon
Oregon

498,673
541,930
541,022
487,516
558,787
393,690
427,784
386,772
430,461
481,311
529,637
596,707
541,275
574,091
567,246
530,193
475,884
533,691
534,352
588,845
513,750
516,692
539,883
418,483
452,955
432,909
493,853
393,368
405,946
561,874
544,747
470,339
530,410
455,378
668,180
597,626
612,909
585,669
641,282
447,013
476,238
421,466
427,983
429,498
544,597
446,014
487,611

Kate
Kate
Jun
Kate
Kate
Deb
Kate
Ted
Jun
Kyle
Jun
Jun
Jun
Ted
Kate
Kate
Kate
Ted
Deb
Ted
Kate
Jun
Ted
Kate
Jun
Jun
Ted
Kate
Ted
Kate
Deb
Deb
Jun
Deb
Jun
Kate
Ted
Deb
Kate
Ted
Deb
Ted
Jun
Ted
Kyle
Ted
Ted

Summer
Summer
Summer
Summer
Summer
Summer
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Fall
Spring
Spring
Spring
Spring
Spring

2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010

Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter

Washington
Washington
Washington
Washington
Washington
Washington
California
California
California
California
California
California
Oregon
Oregon
Oregon
Oregon
Oregon
Oregon
Washington
Washington
Washington
Washington
Washington
Washington
California
California
California
California
California
California
Oregon
Oregon
Oregon
Oregon
Oregon
Oregon
Washington
Washington
Washington
Washington
Washington
Washington
California
California
California
California
California

565,106
567,487
538,648
708,608
634,104
522,179
511,406
487,020
563,504
565,428
380,743
351,971
388,646
337,401
441,713
438,764
378,201
413,519
516,512
494,282
538,958
502,214
539,525
517,806
625,097
632,542
565,957
609,354
501,393
461,281
476,654
405,717
407,780
462,903
460,030
463,982
622,573
578,387
579,998
594,253
473,198
601,406
616,561
559,403
597,369
709,122
462,316

Ted
Kate
Ted
Ted
Ted
Jun
Jun
Jun
Kate
Kate
Ted
Kate
Ted
Ted
Jun
Ted
Jun
Deb
Kate
Kate
Jun
Jun
Ted
Ted
Kate
Jun
Kate
Jun
Jun
Ted
Jun
Kate
Jun
Ted
Kate
Kate
Ted
Ted
Jun
Jun
Kate
Ted
Deb
Ted
Deb
Ted
Deb

Spring
Spring
Spring
Spring
Spring
Spring
Spring
Spring
Spring
Spring
Spring
Spring
Spring
Summer
Summer
Summer
Summer
Summer
Summer
Summer
Summer
Summer
Summer
Summer
Summer
Summer
Summer
Summer
Summer
Summer
Summer
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter
Winter

2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010

Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner
Porter
Stout
Amber Ale
Hefeweizen
Pale Ale
Pilsner

California
Oregon
Oregon
Oregon
Oregon
Oregon
Oregon
Washington
Washington
Washington
Washington
Washington
Washington
California
California
California
California
California
California
Oregon
Oregon
Oregon
Oregon
Oregon
Oregon
Washington
Washington
Washington
Washington
Washington
Washington
California
California
California
California
California
California
Oregon
Oregon
Oregon
Oregon
Oregon
Oregon
Washington
Washington
Washington
Washington

466,554
380,338
406,420
422,373
385,923
474,148
438,409
554,317
609,069
563,406
606,490
564,560
600,194
549,802
493,119
576,355
670,233
524,001
527,703
355,197
420,947
423,393
547,726
478,507
425,549
618,631
593,074
708,115
657,230
636,020
648,918
508,848
522,433
526,729
504,010
426,401
430,903
319,614
417,155
395,381
385,921
349,157
375,737
528,322
497,798
515,122
501,404

Jun
Ted
Ted
Ted
Deb
Deb
Kate
Kate
Deb
Ted
Kate
Jun
Jun
Kate
Kate
Jun
Jun
Kate
Jun
Ted
Jun
Kate
Ted
Kate
Jun
Kate
Kate
Ted
Kate
Kate
Deb
Deb
Ted
Jun
Ted
Ted
Ted
Jun
Deb
Kate
Ted
Kate
Deb
Ted
Kate
Kate
Deb

Winter
Winter

2010
2010

Porter
Stout

Washington
Washington

518,350
445,582

Office
Manila
Cebu
Davao
Manila
Davao
Davao
Manila
Manila
Davao
Cebu

Amount
5,000.00
450.00
3,211.56
250.00
125.50
3,000.00
2,100.00
335.39
65.00
250.00

DateDue
4/1/2011
4/19/2011
4/28/2011
4/30/2011
5/4/2011
5/10/2011
5/23/2011
5/23/2011
5/28/2011
5/30/2011

Today
5/5/2011
5/5/2011
5/5/2011
5/5/2011
5/5/2011
5/5/2011
5/5/2011
5/5/2011
5/5/2011
5/5/2011

Kate
Deb

Exercise 2

InvoiceNum
AG-0145
AG-0189
AG-0220
AG-0310
AG-0355
AG-0409
AG-0581
AG-0600
AG-0602
AG-0633
TOTAL

Total past due days

Total past due days (array formula)
Total amount past due
Total amount past due (array formula)
Total for Manila only
Total for all except Manila
Total amount with due date beyond May 1
Total past due amount for Manila (Excel 2007 only)
Total past due amount for Manila (array formula)
Total past due amounts OR amounts for Manila (array formula)
Total past due amounts for Manila and Cebu (array formula)

Difference
-34
-16
-7
-5
-1
5
18
18
23
25

390,741

Adjusted Closing Stock Prices

STOCK
3-Jan-12
1-Dec-11
1-Nov-11
1-Oct-11
1-Sep-11
2-Aug-11
1-Jul-11
1-Jun-11
3-May-11
1-Apr-11
1-Mar-11
2-Feb-11
2-Jan-11
1-Dec-10
3-Nov-10
1-Oct-10
2-Sep-10
1-Aug-10
1-Jul-10
2-Jun-10
1-May-10
1-Apr-10
3-Mar-10
3-Feb-10
2-Jan-10
2-Dec-09
1-Nov-09
1-Oct-09
3-Sep-09
1-Aug-09
1-Jul-09
3-Jun-09
1-May-09
1-Apr-09
1-Mar-09
1-Feb-09
2-Jan-09
3-Dec-08
1-Nov-08
1-Oct-08

A
35.3
37.68
37.62
36.19
33.91
28.51
30.8
36.4
30.66
25.26
24.24
22.17
23.49
22.51
21.5
21.85
17.69
16.69
15.56
16.35
14.92
12.39
12.01
10.43
9.1
8.18
9.14
7.46
4.78
5.14
6.59
7.38
8.01
7.38
9.23
7.23
8.62
8.87
7.78
5.44

B
31.94
32.06
30.74
28.62
27.52
26.53
27
25.53
25.92
26.73
28.05
27.78
25.27
24.38
25.16
24.17
22.76
21.67
22.24
21.33
18.11
16.53
13.98
13.16
13.77
15.55
17.88
17.27
16.84
22.65
23.6
27.13
28.55
27.08
26.46
24.88
25.91
25.24
25.59
24.62

C
22.26
23.39
22.38
22.22
20.02
21.25
24.3
27.51
28.45
25.6
27.07
29.06
30.33
31.85
33.33
32.73
27.33
28.4
24.7
20.65
20.66
18.24
16.14
17.1
15.51
15.42
20.67
17.11
13.74
16.49
18.56
18.05
27.28
28.24
30.02
28.18
34.57
31.03
32.22
24.07

D
35.7
36.5
35.15
33.92
33.38
32.4
32.86
32.02
30.57
29.42
29.98
31.94
32.83
30.25
27.81
28.14
28.92
28.51
27.42
27.65
27.49
28.21
24.42
23.03
21.99
23.14
25.57
23.81
23.25
28.23
30.15
27.2
28.98
29.36
34.81
35.83
34.41
37.13
35.5
33.58

E
63.72
63.42
60.32
58.11
56.07
57.83
54.73
55.16
55.17
53.23
49.97
53.11
52.39
50.67
48.35
49.13
48.34
48.4
50.32
50.23
52.8
54.52
55.98
50.74
51.65
51.74
54.93
56.41
51.92
52.14
50.32
49.99
58.69
60.88
61.92
58.06
54.66
56.17
55.36
54.87

F
13.23
14.64
14.18
13.03
13.94
14
14.61
15.43
14.64
15.14
13.29
13.47
14.24
15.57
12.85
11.81
10.4
11.16
10.68
10.51
10.04
9.85
7.12
7.88
8.63
8.72
10.67
7.93
9.08
10.9
12.48
14.71
16.22
14.62
15.06
13.59
13.98
14.26
17.18
14.56

4-Sep-08
1-Aug-08
2-Jul-08
1-Jun-08
1-May-08
2-Apr-08
1-Mar-08
1-Feb-08
2-Jan-08
1-Dec-07
1-Nov-07
2-Oct-07
1-Sep-07
1-Aug-07
3-Jul-07
1-Jun-07
1-May-07
3-Apr-07
1-Mar-07
1-Feb-07
26-Jan-07
Ave Ret
Std Dev
CAGR
Beta

4.41
5.93
8.81
9.99
9.06
10.09
7.88
11.9
18.66
15.03
19.82
29.32
45.5
60.75
64.35
61.94
56.53
65.12
85.69
79.85
80.51

25.63
28.36
27.52
25.55
28.59
25.97
25.07
27.76
27.72
32.11
30.1
29.08
28.32
28.04
29.73
30.9
33.6
35.71
35.07
29.79
35.07

20.15
27.56
29.37
28.82
26.61
30.43
25.9
28.12
36.41
29.58
37.45
44.26
40.88
73.64
65.64
65.73
61.3
62.32
64.84
55.53
48.59

34.31
37.55
39.94
44.84
44.84
44.41
38.31
42.4
41.92
43.71
45.04
49.81
52.54
53.16
46.87
47.93
47.6
47.4
46.91
39.55
40.04

52.49
49.94
51.09
47.18
45.78
45.23
41.01
45.63
43.37
48.93
46.57
42.61
43.45
42.53
42.76
46.81
41.12
37.63
32.05
32.84
38.98

15.59
17.86
22.62
21.8
21.63
26.18
24.72
24.45
24.78
20.39
19.79
22.72
21.92
20.79
22.9
20.76
21.82
24.6
20.31
18.41
22

GOAL SEEK
The Goal Seek function causes Excel to change a selected input value in a formula
until the formula produces a desired result. Thus, Goal Seek tells you the value of some
input necessary to reach a given goal.
Discount rate:
Project X
Years
0
Cash flows
(1,000)
Project Y
Years
0
Cash flows
-1,000.00
Project X

10.000%
1
650

2
500

3
200

NPVX
IRRX

154.40

1
200.00

2
550.00

3
700.00

NPVY
IRRY

162.28

NPV PROFILE

Project Y

$500
$400
Project's NPV

0%
5%
10%
15%
20%
25%

$300

Project X

$200

Project Y

$100
$0
-$100
-$200
0

At what point will we be indifferent to the two projects:

NPVX
NPVY
Difference

0.05

0.1

0.15

Cost of Capital

Use GOAL Seek to determine what rate will we

be indifferent to the two options

0.2

0.25

OPTIMIZATION USING SOLVER

1)

Blue Ridge Hot Tubs manufactures and sells two models of hot tubs: the Aqua-Spa
and the Hydro-Lux. The owner of the company needs to decide how many of each type
to produce for the next production cycle. Prefabricated fiberglass hot tub shells are bought
from a local supplier and pump and tubing are added to create the hot tubs. (The supplier
has the capacity to deliver as many as the company needs). The same type of pump is installed
into both hot tubs. Each Aqua requires 9 hrs of labor and 12 ft of tubing. Each Hydro requires
6 hrs of labor and 16 ft of tubing. The company expects 1,866 hrs of production labor hours and
2,880 ft of tubing available. A CM of 350 and 300 is earned on each Aqua and Hydro respective
The company expects to be able to sell all that it produces. There are 300 pumps available.
How many Aqua and Hydro should be produced to maximize profits?

2)

Cash Flow Optimization Problem

Mexicali is a small but growing restaurant chain specializing in Mexican fast
food. The management of the company has decided to build a new location in
Quezon City, and wants to establish a construction fund (or sinking fund)
to pay for the new facility. Construction of the restaurant is expected
to take six months and cost P 40,000,000. Mexicali's contract
with the construction company requires it to make payments of P 12,500,000
at the end of the second and fourth months, and a final payment of P 15,000,000
at the end of the sixth month when the restaurant is completed. The company can
use four investment opportunities to establish the construction fund; these investments
are summarized in the following table:

Available in Months to
Investment
Month
A
1, 2, 3, 4, 5, 6
B
1, 3, 5
C
1, 4
D
1

Maturity
1
2
3
6

Yield at
Maturity
1.8%
3.5%
5.8%
11.0%

The table indicates that investment A will be available at the beginning of

each of the next six months, and funds invested in this manner mature
in one month with a yeild of 1.8%. Funds can be placed in investment C only
at the beginning of months 1 and/or 4, and mature at the end of three months with
a yeild of 5.8%.
The management of Mexicali needs to determine the investment plan that allows
them to meet the required schedule of payments while placing the least amount
of money in the construction fund.
This is a multi-period problem because a six-month planning horizon must be
considered. That is, Mexicali must plan which investment alternatives to use
at various times during the next six months.

Aqua-Spa
ny of each type
shells are bought
bs. (The supplier
ype of pump is installed
Each Hydro requires
duction labor hours and
ua and Hydro respectively.
0 pumps available.

pany can
e investments

onths with

that allows

A PRODUCTION AND INVENTORY PLANNING PROBLEM

The AirComp Corporation manufactures heavy duty air compressors for the
home and light industrial markets. Upton is presently trying to plan its
production and inventory levels for the next six months. Because of seasonal
fluctuations in utilityand raw material costs, the per unit cost of producing air
compressors varies from month to month--as does the demand for air
compressors. Production capacity also varies from month to month due to
differences in the number of working days, vacations, and scheduled maintenance
and training. The following table summarizes the monthly production costs,
demands, and production capacity AirComp's management expects to face over
the next six months.

Unit Production Cost

Units Demanded
Maximum Production

1
240
1,000
4,000

2
250
4,500
3,500

Month
3
4
265
285
6,000
5,500
4,000
4,500

5
280
3,500
4,000

6
260
4,000
3,500

Given the size of AirComp's warehouse, a maximum of 6,000 units can be

held in inventory at the end of any month. The owner of the company likes to
keep at least 1,500 units in inventory as safety stock to meet unexpected
demand contingencies. To maintain a stable workforce, the company wants to
produce at no less than one half of its maximum production capacity each
month. The controller estimates that the cost of carrying a unit in any
given month is approximately equal to 1.5% of the unit production cost in the
same month. AirComp estimates the number of units carried in inventory each
month by averaging the beginning and ending inventory for each month.
There are 2,750 units currently in inventory. The company would like to identify
the production and inventory plan for the next six months that will meet the
expected demand each month while maximizing production and inventory
costs.

seasonal

d maintenance

s to face over

nits can be
ny likes to

ny wants to

ntory each

d like to identify

REGRESSION ANALYSIS
Month
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec

X
1
2
3
4
5
6
7
8
9
10
11
12

Using line
Actual Y Predicted Y
512
743
559
875
755
890
663
934
1,042
1,102

Using Trend
Predicted Y Forecasted