On January 1,2013, Acme Co. is considering purchasing a 40 percent ownership interest in PHC Co., a privately held enterprise, for $700,000. PHC predicts its profit will be $185,000 in 2013, projects a 10 percent annual increase in profits in each of the next four years, and expects to pay a steady annual dividend of $30,000 for the foreseeable future. Because PHC has on its books a patent that is undervalued by $375,000, Acme realizes that it will have an additional amortization expense of $15,000 per year over the next 10 years?the patent?s estimated useful life. All of PHC?s other assets and liabilities have book values that approximate market values. Acme uses the equity method for its investment in PHC. Required 1. Using an Excel spreadsheet, set the following values in cells: ? Acme?s cost of investment in PHC. ? Percentage acquired. ? First-year PHC reported income. ? Projected growth rate in income. ? PHC annual dividends. ? Annual excess patent amortization. 2. Referring to the values in (1), prepare the following schedules using columns for the years 2013 through 2017. ? Acme?s equity in PHC earnings with rows showing these: ? Acme?s share of PHC reported income. ? Amortization expense. ? Acme?s equity in PHC earnings. ? Acme?s Investment in PHC balance with rows showing the following: ? Beginning balance, ? Equity earnings. ? Dividends. ? Ending balance. ? Return on beginning investment balance = Equity earnings/Beginning investment balance in each year. 3. Given the preceding values, compute the average of the projected returns on beginning investment balances for the first five years of Acme?s investment in PHC. What is the maximum Acme can pay for PHC if it wishes to earn at least a 10 percent average return on beginning investment balance? (Hint: Under Excel?s Tools menu, use the Solver or Goal Seek capability to produce a 10 percent average return on beginning investment balance by changing the cell that contains Acme?s cost of investment in PHC. Excel?s Solver should produce an exact answer while Goal Seek should produce a close approximation. You may need to first add in the Solver capability under Excel?s Tools menu.)

Chapter 1 Excel Case No. 1 Parts 1, 2 and 3 10% 30000 700000 (given in problem) 15000 185000 40% Growth rate in income Dividends Cost Annual amortization 1st year PHC income Percentage owned 2013 Acme share of PHC income Amortization Equity earnings Beginning Balance Equity earnings Dividends Ending Balance 2014 2015 74000 15000 59000 81400 15000 66400 89540 15000 74540 700000 59000 -12000 747000 747000 66400 -12000 801400 801400 74540 -12000 863940 8.43% 8.89% 9.30% 2016 98494 15000 83494 2017 108343 15000 93343 863940 935434 83494 93343 -12000 -12000 935434 1016777 Average ROI Beginning Balance Equity earnings Dividends Ending Balance 9.98% 9.25% Need help on Part 3 Part 3 Growth rate in income Dividends Cost Annual amortization 1st year PHC income Percentage owned PHC reported income Amortization Equity earnings 9.66% 10% 30000 700000 15000 185000 40% I'm stuck on the solver, how to use it what Data to put on target, changing cell, constraint 74000 15000 59000 81400 15000 66400 89540 15000 74540 700000 59000 -12000 747000 747000 66400 -12000 801400 801400 74540 -12000 863940 8.43% 8.89% 9.30% 98494 15000 83494 108343 15000 93343 863940 935434 83494 93343 -12000 -12000 935434 1016777 Average ROI 9.66% 9.98% 9.25%