Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
This spreadsheet was prepared by Kenneth M. Eades, Professor of Business Administration. Copyright © 2007 by the University of Virginia Darden School Foundation, Charlottesville,
VA. All rights reserved. For customer service inquiries, send an e-mail to sales@dardenbusinesspublishing.com. No part of this publication may be reproduced, stored in a retrieval
system, posted to the Internet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School
Foundation.
Per-share data
Shares outstanding (millions) 500
Book value per share $5.00
Recent market value per sha $24.00
Other data
Bond rating A
Beta 1.10
Source: Datastream
Exhibit TN2
Worldwide Paper Company
Weighted-Average Cost of Capital
Other:
Bond rating: A
Beta: 1.10
Tax rate: 40%
Adjustment for Inflation ==> 0.000% {Exhibit TN1 displays “base case with inflation” = 0%. Exhibit TN3 displays cash fl
11.1% = IRR
In this question, we try to test the ability of students in summarizing and understanding the case.
Note:
Please mark the answer based on the followings:
2 1. Ability to summarize and synthesize. Not just copy and paste from the case.
2 2. Writing skills including English, grammar, sentence structure, etc.
6 3. Highlighting the key points such as: Cost reduction, increasing revenue, new technology, manufacturin
10 Total marks
chnology, manufacturing/construction business, new project, decision making, investment, etc.
WORLDWIDE PAPER COMPANY
Woodyard Investment Analysis ($000)
Question 2: What yearly cash flows are relevant for this investment decision? Do not forget the effect of taxes and the initial inves
Adjustment for Inflation ==> 0.000% {Exhibit TN1 displays “base case with inflation” = 0%. Exhibit TN3 displays cash fl
35
If they have it embedded in total investment for 2022, the mark has to be added
One mark for 2017 and 2.5 mark for 2018-2022 (0.5 for each year)
One mark for 2017 and 2.5 mark for 2018-2022 (0.5 for each year)
0.5 mark for for each year (if they get EBIT right, meaning that they got total cost right, so even if total cost is not stated, the relevant mark (3) will be given, making the
0.5 mark for for each year
0.5 mark for for each year
Total Marks
WORLDWIDE PAPER COMPANY
Woodyard Investment Analysis ($000)
mark (3) will be given, making the total of 6 for total cost and EBIT)
Question 3: What discount rate should Worldwide Paper Company (WPC) use to analyze those cash flows? Be prepared to justify
your recommended rate and the assumptions that you used to estimate it.
Exhibit TN2
Worldwide Paper Company
Weighted-Average Cost of Capital
Per-share data: 12,000 80.00% 8.6400% 6.91% 7 1 mark for total equity or percenta
Shares outstanding (in milli 500 (Ke) * We accept if students take othe
Book value per share $5.00 15,000 7.37% 5
Recent market value per sh $24.00 WACC
Other:
Bond rating: A 5 Bonus marks if they choose 10-ye
Beta: 1.10 * Bruner et al. (1998): 70% use Tr
Tax rate: 40%
Source: Created by author. 16 Total Marks
5 Bonus Marks
21 Max Marks
justify
debt or percentage, 1 mark for taking rate for bond rating A, 2 mark for w*Kd*1-tax
Question 4: What is the net present value (NPV) and internal rate of return (IRR) for the inve
Adjustment for Inflation ==> 0.000% {Exhibit TN1 displays “base case with inflation” = 0%. Exhibit TN3 displays cash fl
11.07% = IRR 6
For final answer considering the WACC (please remember there might be different Ke). If a group did manual but wrong final answer, the discretion is yours to allocate
For final answer considering the WACC (please remember there might be different Ke). If a group did manual but wrong final answer, the discretion is yours to allocate
Total Marks
WORLDWIDE PAPER COMPANY
Woodyard Investment Analysis ($000)
Question 5: If inflation rate were 2.5%, what would be the NPV and IRR?
Adjustment for Inflation ==> 2.500% {Exhibit TN1 displays “base case with inflation” = 0%. Exhibit TN3 displays cash fl
EBIT (200) 2,638 2,778 2,923 3,071 3,223 * we will not consider any
- Taxes (40%) 80 (1,055) (1,111) (1,169) (1,228) (1,289)
NOPAT (120) 1,583 1,667 1,754 1,843 1,934
+ Depreciation 3,000 3,000 3,000 3,000 3,000 3,000
- Investment (16,000) (2,400) (625) (26) (26) (27) 2,184
= Free Cash Flow ### 480 3,958 4,641 4,727 4,816 7,117
12.41% = IRR 6
\ 100
WORLDWIDE PAPER COMPANY
Woodyard Investment Analysis ($000)
* we will not consider any mark for gray and while cells. If they get the right NPV and IRR, meaning that they did other parts right. Note agai
For final answer considering the WACC (please remember there might be different Ke). If a group did manual but wrong final answer, the discretion is yours to allocate
For final answer considering the WACC (please remember there might be different Ke). If a group did manual but wrong final answer, the discretion is yours to allocate
Total Marks
WORLDWIDE PAPER COMPANY
Woodyard Investment Analysis ($000)