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10.11 Internal rate of return: Refer to Problem 10.4. What is the IRR that Franklin Mints management can expect on this project? 10.12 Internal rate of return: Hathaway, Inc., a resort management company, is refurbishing one of its hotels at a cost of $7.8 million. Management expects that this willI lead to additional cash flows of $1.8 million for the next six years. What is the IRR of this project? If the appropriate cost of capital is 12 percent, should Hathway go ahead with this project? 10.13 Profitability index: What is the profitability index, and why is it helpful in the capital rationing

10.11 Internal rate of return: Refer to Problem 10.4. What is the IRR that Franklin Mints management can expect on this project? 10.12 Internal rate of return: Hathaway, Inc., a resort management company, is refurbishing one of its hotels at a cost of $7.8 million. Management expects that this willI lead to additional cash flows of $1.8 million for the next six years. What is the IRR of this project? If the appropriate cost of capital is 12 percent, should Hathway go ahead with this project? 10.13 Profitability index: What is the profitability index, and why is it helpful in the capital rationing

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Can I get the answers to 10.11 and 10.12.

**10.11 Internal rate of return:** Refer to Problem 10.4. What is the IRR that Franklin Mints management can expect on this project? **10.12 Internal rate of return:** Hathaway, Inc., a resort management company, is refurbishing one of its hotels at a cost of $7.8 million. Management expects that this will lead to additional cash flows of $1.8 million for the next six years. What is the IRR of this project? If the appropriate cost of capital is 12 percent, should Hathaway go ahead with this project? **10.13 Profitability index:** What is the profitability index, and why is it helpful in the capital rationing process?
Transcribed Image Text:**10.11 Internal rate of return:** Refer to Problem 10.4. What is the IRR that Franklin Mints management can expect on this project? **10.12 Internal rate of return:** Hathaway, Inc., a resort management company, is refurbishing one of its hotels at a cost of $7.8 million. Management expects that this will lead to additional cash flows of $1.8 million for the next six years. What is the IRR of this project? If the appropriate cost of capital is 12 percent, should Hathaway go ahead with this project? **10.13 Profitability index:** What is the profitability index, and why is it helpful in the capital rationing process?
**10.1 Net present value:** Riggs Corp. management is planning to spend $650,000 on a new marketing campaign. They believe that this action will result in additional cash flows of $325,000 over the next three years. If the discount rate is 17.5 percent, what is the NPV on this project? **10.2 Net present value:** Kingston, Inc. management is considering purchasing a new machine at a cost of $4,133,250. They expect this equipment to produce cash flows of $814,322, $863,275, $937,250, $1,017,112, $1,212,960, and $1,225,000 over the next six years. If the appropriate discount rate is 15 percent, what is the NPV of this investment? **10.3 Net present value:** Crescent Industries management is planning to replace some existing machinery in its plant. The cost of the new equipment and the resulting cash flows are shown in the accompanying table. If the firm uses an 18 percent discount rate for projects like this, should management go ahead with the project? | Year | Cash Flow | |------|-------------| | 0 | -$3,300,000 | | 1 | 875,123 | | 2 | 966,222 | | 3 | 1,145,000 | | 4 | 1,250,399 | | 5 | 1,504,445 | **10.4 Net present value:** Management of Franklin Mints, a confectioner, is considering purchasing a new jelly bean-making machine at a cost of $312,500. They project that the cash flows from this investment will be $121,450 for the next seven years. If the appropriate discount rate is 14 percent, what is the NPV for the project?
Transcribed Image Text:**10.1 Net present value:** Riggs Corp. management is planning to spend $650,000 on a new marketing campaign. They believe that this action will result in additional cash flows of $325,000 over the next three years. If the discount rate is 17.5 percent, what is the NPV on this project? **10.2 Net present value:** Kingston, Inc. management is considering purchasing a new machine at a cost of $4,133,250. They expect this equipment to produce cash flows of $814,322, $863,275, $937,250, $1,017,112, $1,212,960, and $1,225,000 over the next six years. If the appropriate discount rate is 15 percent, what is the NPV of this investment? **10.3 Net present value:** Crescent Industries management is planning to replace some existing machinery in its plant. The cost of the new equipment and the resulting cash flows are shown in the accompanying table. If the firm uses an 18 percent discount rate for projects like this, should management go ahead with the project? | Year | Cash Flow | |------|-------------| | 0 | -$3,300,000 | | 1 | 875,123 | | 2 | 966,222 | | 3 | 1,145,000 | | 4 | 1,250,399 | | 5 | 1,504,445 | **10.4 Net present value:** Management of Franklin Mints, a confectioner, is considering purchasing a new jelly bean-making machine at a cost of $312,500. They project that the cash flows from this investment will be $121,450 for the next seven years. If the appropriate discount rate is 14 percent, what is the NPV for the project?
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