Principles of Managerial Finance, Student Value Edition (15th Edition) (The Pearson Series in Finance)
Principles of Managerial Finance, Student Value Edition (15th Edition) (The Pearson Series in Finance)
15th Edition
ISBN: 9780134478166
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Chapter 10, Problem 10.1P

Payback period The Ball Shoe Company is considering an investment project that requires an initial investment of $542.000 and returns after-tax cash inflows of $75,000 per year for 10 years. The firm has a maximum acceptable payback period of 8 years.

  1. a. Determine the payback period for this project.
  2. b. Should the company accept the project? Why or why not?
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Scenario one: Under what circumstances would it be appropriate for a firm to use different cost of capital for its different operating divisions? If the overall firm WACC was used as the hurdle rate for all divisions, would the riskier division or the more conservative divisions tend to get most of the investment projects? Why? If you were to try to estimate the appropriate cost of capital for different divisions, what problems might you encounter? What are two techniques you could use to develop a rough estimate for each division’s cost of capital?

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Principles of Managerial Finance, Student Value Edition (15th Edition) (The Pearson Series in Finance)

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