Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
14th Edition
ISBN: 9780133507690
Author: Lawrence J. Gitman, Chad J. Zutter
Publisher: PEARSON
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Chapter 10, Problem 10.13P
- a. Calculate the project's NPV
- b. Calculate the annual EVA in a typical year.
- c. Calculate the overall project EVA and compare to your answer in part a.
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NPV and EVA A project costs $2,500,000 up front and will generate cash flows in perpetuity of $240,000. The firm’s cost of capital is 9%.
a. Calculate the project’s NPV.
b. Calculate the annual EVA in a typical year.
c. Calculate the overall project EVA and compare to your answer in part a
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NPV and EVA A project cost $3.2 million up front and will generate cash flows in perpetuity of $270,000. The firm's cost of capital is 8%.
a. Calculate the project's NPV.
b. Calculate the annual EVA in a typical year.
c. Calculate the overall project EVA.
a. The project's NPV is $. (Round to the nearest dollar.)
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Chapter 10 Solutions
Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
Ch. 10.1 - What is the financial managers goal in selecting...Ch. 10.2 - Prob. 1FOPCh. 10.2 - What is the payback period? How is it calculated?Ch. 10.2 - What weaknesses are commonly associated with the...Ch. 10.3 - How is the net present value (NPV) calculated for...Ch. 10.3 - Prob. 10.5RQCh. 10.3 - Prob. 10.6RQCh. 10.4 - Prob. 10.8RQCh. 10.4 - Prob. 10.9RQCh. 10.4 - Prob. 10.10RQ
Ch. 10.5 - Prob. 1FOECh. 10.5 - How is a net present value profile used to compare...Ch. 10.5 - Prob. 10.13RQCh. 10 - Prob. 1ORCh. 10 - Prob. 10.1STPCh. 10 - Elysian Fields Inc. uses a maximum payback period...Ch. 10 - Prob. 10.2WUECh. 10 - Prob. 10.3WUECh. 10 - Prob. 10.4WUECh. 10 - Prob. 10.5WUECh. 10 - Prob. 10.1PCh. 10 - Payback comparisons Nova Products has a 5-year...Ch. 10 - Prob. 10.3PCh. 10 - Long-term investment decision, payback method Bill...Ch. 10 - Prob. 10.5PCh. 10 - Prob. 10.6PCh. 10 - Prob. 10.7PCh. 10 - Prob. 10.8PCh. 10 - Prob. 10.9PCh. 10 - Prob. 10.10PCh. 10 - Prob. 10.11PCh. 10 - Prob. 10.12PCh. 10 - NPV and EVA A project costs 2,500,000 up front and...Ch. 10 - Prob. 10.14PCh. 10 - Prob. 10.15PCh. 10 - Prob. 10.16PCh. 10 - Prob. 10.17PCh. 10 - Prob. 10.18PCh. 10 - Prob. 10.19PCh. 10 - Prob. 10.20PCh. 10 - Prob. 10.21PCh. 10 - Prob. 10.22PCh. 10 - Prob. 10.23PCh. 10 - Prob. 10.24PCh. 10 - Prob. 10.25PCh. 10 - Integrative: Multiple IRRs Froogle Enterprises is...Ch. 10 - Integrative: Conflicting Rankings The High-Flying...Ch. 10 - ETHICS PROBLEM Diane Dennison is a financial...Ch. 10 - Spreadsheet Exercise The Drillago Company is...
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- Foster Manufacturing is analyzing a capital investment project that is forecast to produce the following cash flows and net income: The payback period of this project will be: a. 2.5 years. b. 2.6 years. c. 3.0 years. d. 3.3 years.arrow_forwardProject S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7,400 per year for 5 years. Calculate the two projects’ NPVs, IRRs, MIRRs, and PIs, assuming a cost of capital of 12%. Which project would be selected, assuming they are mutually exclusive, using each ranking method? Which should actually be selected?arrow_forwardBuena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a net cash inflow one year from now of 810,000. Assume the cost of capital is 10 percent. Required: 1. Break the 810,000 future cash inflow into three components: a. The return of the original investment b. The cost of capital c. The profit earned on the investment 2. Now, compute the present value of the profit earned on the investment. 3. Compute the NPV of the investment. Compare this with the present value of the profit computed in Requirement 2. What does this tell you about the meaning of NPV?arrow_forward
- Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?arrow_forwardFalkland, Inc., is considering the purchase of a patent that has a cost of $50,000 and an estimated revenue producing life of 4 years. Falkland has a cost of capital of 8%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?arrow_forwardThere are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment or $28.000 and is expected to generate the following cash flows: If the discount rate is 5% compute the NPV of each project and make a recommendation of the project to be chosen.arrow_forward
- NPV and EVA A project cost $2.3 million up front and will generate cash flows in perpetuity of $220,000. The firm's cost of capital is 9%. a. Calculate the project's NPV. b. Calculate the annual EVA in a typical year. c. Calculate the overall project EVA. a. The project's NPV is $ (Round to the nearest dollar.)arrow_forwardNPV and EVA A project cost $2.8 million up front and will generate cash flows in perpetuity of $280,000. The firm's cost of capital is 9%. a. Calculate the project's NPV. b. Calculate the annual EVA in a typical year. c. Calculate the overall project EVA.arrow_forwardA project cost $2.6 million up front and will generate cash flows in perpetuity of $210,000. The firm's cost of capital is 7%. a. Calculate the project's NPV. b. Calculate the annual EVA in a typical year. c. Calculate the overall project EVA.arrow_forward
- All parts please ill rate u surely please sendarrow_forwardA project cost $1.3 million and will generate cash flows in perpetuity of $230,000. The firm's cost of capital is 14%. a. Calculate the project's NPV. b. Calculate the annual EVA in a typical year. c. Calculate the overall project EVA.arrow_forwardA firm evaluates all of its projects by applying the IRR rule. The required return for the following project is 21 percent. The IRR is _____ percent and the firm should ______ the project. Year Cashflow 0 -$28,643 1 $21,000 2 $16,000 3 $4,000arrow_forward
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