Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
14th Edition
ISBN: 9780133507690
Author: Lawrence J. Gitman, Chad J. Zutter
Publisher: PEARSON
Question
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Chapter 10, Problem 10.18P

a)

Summary Introduction

To determine:

The Internal rate of return for each of the project.

Introduction:

Internal Rate of Return is a measure used in the capital budgeting which estimates the profitability of potential investments. IRR is computed as a discount rate that makes the net present value of all cash flows from an investment as zero.

b)

Summary Introduction

To determine:

The additional years required to make the project acceptable.

Introduction:

Internal Rate of Return is a measure used in the capital budgeting which estimates the profitability of potential investments. IRR is computed as a discount rate that makes the net present value of all cash flows from an investment as zero.

c)

Summary Introduction

To determine:

The minimum annual cash inflow which can make this project profitable for the shareholders.

Introduction:

Internal Rate of Return is a measure used in the capital budgeting which estimates the profitability of potential investments. IRR is computed as a discount rate that makes the net present value of all cash flows from an investment as zero.

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IRR, investment life, and cash inflows Oak Enterprises accepts projects earning more than the firm's 14% cost of capital. Oak is currently considering a 10-year project that provides annual cash inflows of $30,000 and requires an initial investment of $203,200. a. Determine the IRR of this project. Is it acceptable? b. Assuming that the cash inflows continue to be $30,000 per year, how many additional years would the flows have to continue to make the project acceptable (that is, to make it have an IRR of 14%)? c. With the given life, an initial investment of $203,200, and cost of capital of 14%, what is the minimum annual cash inflow the investment would have to provide in order for this project to make sense for Oak's shareholders? a. The project's IRR is %. (Round to two decimal places.)
IRR, investment life, and cash inflows Oak Enterprises accepts projects earning more than the firm's 14% cost of capital. Oak is currently considering a 10-year project that provides annual cash inflows of $45,000 and requires an initial investment of $309,600. a. Determine the IRR of this project. Is it acceptable? b. Assuming that the cash inflows continue to be $45,000 per year, how many additional years would the flows have to continue to make the project acceptable (that is, to make it have an IRR of 14%)? c. With the given life, an initial investment of $309,600, and cost of capital of 14%, what is the minimum annual cash inflow the investment would have to provide in order for this project to make sense for Oak's shareholders? a. The project's IRR is %. (Round to two decimal places.) Is the project acceptable? (Select the best answer below.) O A. No O B. Yes b. Assuming that the cash inflows continue to be $45,000 per year, the number of additional years the flows would have to…
NPV (net present value) Craig is considering several capital investments for the upcoming year.  Use the NPV (net present value) method to determine whether the company should investment in the following independent projects: Project 1 costs $28,000 and offers 8 annual cash flows of $8,600.  Craig feels this type of investment should  require an annual return of 16% on projects like this.  Project 2 costs $35,000 and offers 6 annual cash flows of $12,000.  Craig feels this type of investment should  require an annual return of 12% on projects like this.  Requirements 1.  Calculate the NPV of both of these projects  2. What is the maximum acceptable price Craig should pay for each of these projects?

Chapter 10 Solutions

Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)

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