Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
15th Edition
ISBN: 9780134476315
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Textbook Question
Chapter 10, Problem 10.27P
Integrative: Conflicting Rankings The High-Flying Growth Company (HFGC) has been expanding very rapidly in recent years, making its shareholders rich in the process. The average annual
- a. Calculate the
NPV ,IRR , and PI for both projects. - b. Rank the projects based on their NPVs, IRRs, and Pls.
- c. Do the rankings in part b agree or not? If not, why not?
- d. The firm can afford to undertake only one of these investments, and the CEO favors the product introduction because it offers a higher rate of return (i.e., a higher IRR) than the plant expansion. What do you think the firm should do? Why?
| Year | Plant expansion | Product introduction |
| 0 | –$3,500,000 | –$500,000 |
| 1 | 1,500,000 | 250,000 |
| 2 | 2,000,000 | 350,000 |
| 3 | 2,500,000 | 375,000 |
| 4 | 2,750,000 | 425,000 |
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General Finance Question
Consider the following simplified financial statements for the Yoo Corporation (assuming no income taxes):
Income Statement
Balance Sheet
Sales
Costs
$ 40,000 Assets
34,160
$26,000
Debt
Equity
$ 7,000
19,000
Net income $ 5,840
Total
$26,000
Total
$26,000
The company has predicted a sales increase of 20 percent. Assume Yoo pays out half of net income in the
form of a cash dividend. Costs and assets vary with sales, but debt and equity do not.
Prepare the pro forma statements. (Input all amounts as positive values. Do not round intermediate
calculations and round your answers to the nearest whole dollar amount.)
Pro forma income statement
Sales
Costs
$ 48000
40992
Assets
$ 31200
Pro forma balance sheet
Debt
7000
Equity
19000
Net income
$ 7008
Total
$ 31200
Total
30304
What is the external financing needed? (Do not round intermediate calculations. Negative amount
should be indicated by a minus sign.)
External financing needed
$
896
Chapter 10 Solutions
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
Ch. 10.1 - What is the financial managers goal in selecting...Ch. 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. 10.10RQCh. 10.5 - How is a net present value profile used to compare...
Ch. 10.5 - Prob. 10.13RQCh. 10 - Prob. 1ORCh. 10 - All techniques with NPV profile: Mutually...Ch. 10 - Elysian Fields Inc. uses a maximum payback period...Ch. 10 - Prob. E10.1WUECh. 10 - Prob. 10.2WUECh. 10 - Prob. E10.2WUECh. 10 - Axis Corp. is considering investment in the best...Ch. 10 - Prob. E10.3WUECh. 10 - Prob. 10.4WUECh. 10 - Prob. E10.4WUECh. 10 - Cooper Electronics uses NPV profiles to visually...Ch. 10 - Prob. E10.5WUECh. 10 - Payback period The Ball Shoe Company is...Ch. 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 - All techniques with NPV profile: Mutually...Ch. 10 - Integrative: Multiple IRRs Froogle Enterprises is...Ch. 10 - Integrative: Conflicting Rankings The High-Flying...Ch. 10 - Problems with IRR White Rock Services Inc. has an...Ch. 10 - ETHICS PROBLEM Diane Dennison is a financial...Ch. 10 - Spreadsheet Exercise The Drillago Company is...
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