2b.1 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Chapter 2b - Chapter 2b - SupportSupport

The Business, Tax, The Business, Tax, and Financial and Financial EnvironmentsEnvironments

The Business, Tax, The Business, Tax, and Financial and Financial EnvironmentsEnvironments

2b.2 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Solving Corporate Solving Corporate Tax QuestionsTax Questions

• Sample of how to use Excel to calculate various items

• The “Inputs” section represents the only needed inputs into Excel – yellow color

• The “Outputs” are generated items based on the internal modeling in Excel – blue color

2b.3 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

So what do we need to So what do we need to calculate these variables?calculate these variables?

• Corporate Taxable Income (Input)

• Corporate tax model

• Excel skills in VLOOKUP and formula creation skills

2b.4 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Tax Table in ExcelTax Table in Excel

What is “behind the scenes” in calculating the marginal rate, tax liability and average tax rate?

… it is the same tax table from your text recreated!

2b.5 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

Tax Table in ExcelTax Table in Excel

Once I create the table, how do I calculate the marginal rate and tax liability?

… use VLOOKUP (refer to file VW13E-02b.xlsx)!

2b.6 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

So how do we create So how do we create yield curves?yield curves?

1. Determine what relationship(s) you need to evaluate

2. Determine where you can locate the data

3. Transfer data into Excel and create a “Scatter with Smooth Lines and Markers”

4. Let us go through an example.

2b.7 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

So how do we create So how do we create yield curves?yield curves?

We have gone to the US Treasury web site (ustreas.gov) and have located the daily rates for April 2008!

2b.8 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

So how do we create So how do we create yield curves?yield curves?

• Highlight the data from the previous web page and copy it to your clipboard.

• Paste it into Excel for the example on the right.

2b.9 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

So how do we create So how do we create yield curves?yield curves?

• Pull the data that you want to graph.

• The “green” highlighted data represents April 16, 2008.

• The “blue” highlighted area represents the maturity of the instrument.

2b.10 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.

So how do we create So how do we create yield curves?yield curves?

• In Excel you now click the “Insert” tab

• Click on the down arrow under “Scatter” on the ribbon

• Choose “Scatter with Smooth Lines and Markers”

• Complete your graph as you desire.

• This represents a “typical” shaped Yield Curve (Treasuries)

Refer to VW13-02.xlsx for the above data and graph.