1. In class, we discussed how we use the industry life cycle to explain a firms financing policy (capital structure). Please try to discuss the possible causes why firms in each stage would face capital rationing constraints.

2.In the case of California Pizza Kitchen, we discuss the what level of debt the firm should use. In that analysis, book value of debt was used at the level of 10%, 20%, and 30%. Many of you were concerned with the financial risk and financial flexibility, and thus suggested to undertake 20% or less. At the end, I converted the book value of debt ratio into market value of debt ratio, and you realized the market value of debt ratio to be considered were just 3%, 7%, and 10%. What is your financial suggestion? Why?

3. Utica Enterprises has asked for your help in deciding how much cash to return to stockholders. The firm currently pays no dividends and had net income of $ 100 million in the most recent year on revenues of $ 1 billion; the firm had depreciation of $ 50 million. The firms revenues, net income and depreciation are expected to increase 20% a year for the next 5 years, and 5% thereafter. Uttica has capital expenditures that are expected to amounts to 140% of depreciation for the next 5 years. Working capital requirements will remain 10% of revenues and there is no debt outstanding.

(a) Estimate the free cash flow to equity for the next 5 years.

(b) If the firm pays 20% of its earnings as dividends and has a current cash balance of $ 300 million, estimate how much cash it will have available in 5 years.

Answering the following question based on the case Whirlpool Europe.

5. (25%) Use the attached data to perform the following estimation.

a. Calculate the NPV if all benefits (additional product availability, cost saving, and improved margin) are realized. (Although the numbers provided may not be the same as yours, the logics of estimation are the same. This question is almost like a free question, right?)

b. Among the benefits, which one you think the most unlikely to be realize? Why? Estimate the NPV if that the most-unlikely-be-realized benefit is not realized.

Benefits of Project Atlantic 2000 2001 2002 2003 2004 2005 Without ERP Unit Revenue COGS 6,107,909 1,227,859 1,049,263 178,596 14.55% 6,107,909 1,227,859 1,049,263 178,596 14.55% 6,107,909 1,227,859 1,049,263 178,596 14.55% 6,107,909 1,227,859 1,049,263 178,596 14.55% 6,107,909 1,227,859 1,049,263 178,596 14.55% 6,107,909 1,227,859 1,049,263 178,596 14.55% Margin % Margin Inventory 148,697 148,697 148,697 148,697 148,697 148,697 With ERP Unit Revenue COGS 6,143,637 1,235,707 1,055,853 179,854 14.55% 6,214,071 1,251,823 1,068,621 183,201 14.63% 6,298,604 1,269,933 1,083,199 186,734 14.70% 6,342,696 1,279,205 1,090,252 188,953 14.77% 6,367,635 1,284,410 1,094,313 190,098 14.80% 6,375,267 1,285,900 1,095,640 190,260 14.80% Margin %Margin Inventory 146,012 139,045 130,616 124,398 120,633 119,103 Pre-tax Incremental CFs Unit Revenue 35,728 7,848 6,590 1,258 106,162 23,964 19,358 4,605 190,695 42,074 33,936 8,138 234,787 51,346 40,989 10,357 259,726 56,551 45,050 11,502 267,358 58,041 46,377 11,664 COGS Margin Inventory Inventory Investment (2,685) (2,685) (9,652) (6,967) (18,081) (8,429) (24,299) (6,218) (28,064) (3,765) (29,594) (1,529) Benefits of Project Atlantic 2000 2001 2002 2003 2004 2005 Without ERP Unit Revenue COGS 6,107,909 1,227,859 1,049,263 178,596 14.55% 6,107,909 1,227,859 1,049,263 178,596 14.55% 6,107,909 1,227,859 1,049,263 178,596 14.55% 6,107,909 1,227,859 1,049,263 178,596 14.55% 6,107,909 1,227,859 1,049,263 178,596 14.55% 6,107,909 1,227,859 1,049,263 178,596 14.55% Margin % Margin Inventory 148,697 148,697 148,697 148,697 148,697 148,697 With ERP Unit Revenue COGS 6,143,637 1,235,707 1,055,853 179,854 14.55% 6,214,071 1,251,823 1,068,621 183,201 14.63% 6,298,604 1,269,933 1,083,199 186,734 14.70% 6,342,696 1,279,205 1,090,252 188,953 14.77% 6,367,635 1,284,410 1,094,313 190,098 14.80% 6,375,267 1,285,900 1,095,640 190,260 14.80% Margin %Margin Inventory 146,012 139,045 130,616 124,398 120,633 119,103 Pre-tax Incremental CFs Unit Revenue 35,728 7,848 6,590 1,258 106,162 23,964 19,358 4,605 190,695 42,074 33,936 8,138 234,787 51,346 40,989 10,357 259,726 56,551 45,050 11,502 267,358 58,041 46,377 11,664 COGS Margin Inventory Inventory Investment (2,685) (2,685) (9,652) (6,967) (18,081) (8,429) (24,299) (6,218) (28,064) (3,765) (29,594) (1,529) Benefits of Project Atlantic 2000 2001 2002 2003 2004 2005 Without ERP Unit Revenue COGS 6,107,909 1,227,859 1,049,263 178,596 14.55% 6,107,909 1,227,859 1,049,263 178,596 14.55% 6,107,909 1,227,859 1,049,263 178,596 14.55% 6,107,909 1,227,859 1,049,263 178,596 14.55% 6,107,909 1,227,859 1,049,263 178,596 14.55% 6,107,909 1,227,859 1,049,263 178,596 14.55% Margin % Margin Inventory 148,697 148,697 148,697 148,697 148,697 148,697 With ERP Unit Revenue COGS 6,143,637 1,235,707 1,055,853 179,854 14.55% 6,214,071 1,251,823 1,068,621 183,201 14.63% 6,298,604 1,269,933 1,083,199 186,734 14.70% 6,342,696 1,279,205 1,090,252 188,953 14.77% 6,367,635 1,284,410 1,094,313 190,098 14.80% 6,375,267 1,285,900 1,095,640 190,260 14.80% Margin %Margin Inventory 146,012 139,045 130,616 124,398 120,633 119,103 Pre-tax Incremental CFs Unit Revenue 35,728 7,848 6,590 1,258 106,162 23,964 19,358 4,605 190,695 42,074 33,936 8,138 234,787 51,346 40,989 10,357 259,726 56,551 45,050 11,502 267,358 58,041 46,377 11,664 COGS Margin Inventory Inventory Investment (2,685) (2,685) (9,652) (6,967) (18,081) (8,429) (24,299) (6,218) (28,064) (3,765) (29,594) (1,529) Benefits of Project Atlantic 2000 2001 2002 2003 2004 2005 Without ERP Unit Revenue COGS 6,107,909 1,227,859 1,049,263 178,596 14.55% 6,107,909 1,227,859 1,049,263 178,596 14.55% 6,107,909 1,227,859 1,049,263 178,596 14.55% 6,107,909 1,227,859 1,049,263 178,596 14.55% 6,107,909 1,227,859 1,049,263 178,596 14.55% 6,107,909 1,227,859 1,049,263 178,596 14.55% Margin % Margin Inventory 148,697 148,697 148,697 148,697 148,697 148,697 With ERP Unit Revenue COGS 6,143,637 1,235,707 1,055,853 179,854 14.55% 6,214,071 1,251,823 1,068,621 183,201 14.63% 6,298,604 1,269,933 1,083,199 186,734 14.70% 6,342,696 1,279,205 1,090,252 188,953 14.77% 6,367,635 1,284,410 1,094,313 190,098 14.80% 6,375,267 1,285,900 1,095,640 190,260 14.80% Margin %Margin Inventory 146,012 139,045 130,616 124,398 120,633 119,103 Pre-tax Incremental CFs Unit Revenue 35,728 7,848 6,590 1,258 106,162 23,964 19,358 4,605 190,695 42,074 33,936 8,138 234,787 51,346 40,989 10,357 259,726 56,551 45,050 11,502 267,358 58,041 46,377 11,664 COGS Margin Inventory Inventory Investment (2,685) (2,685) (9,652) (6,967) (18,081) (8,429) (24,299) (6,218) (28,064) (3,765) (29,594) (1,529)