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 10.9P

a)

Summary Introduction

To determine:

NPV, acceptability of the purchase of equipment.

Introduction:

The difference between the present value of cash inflows and the present value of cash outflows over a period of time is known as the Net Present value. NPV is used in capital budgeting as a criterion to analyse the profitability of projects.

b)

Summary Introduction

To determine:

The highest cost of capital that the firm can have to have a positive NPV.

Introduction:

The difference between the present value of cash inflows and the present value of cash outflows over a period of time is known as the Net Present value. NPV is used in capital budgeting as a criterion to analyse the profitability of projects.

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Dynamic Energy Wares (DEW) has decided to change the manner in which it distributes its products to large companies. The change in the distribution system comes at a time when DEW’s profits are declining. The declining profits might not be the sole reason for the change, but it appears to be the primary impetus for the decision. It also appears that the new policy requiring DEW’s distributors to increase inventory levels before the end of the fiscal year will artificially inflate DEW’s sales for the current year. However, DEW’s new policy does not require the distributors to pay for any increased inventory until next year (six months), and any unsold inventory can be returned after nine months. So, if the demand for DEW’s products actually is decreasing, the impact will appear on next year’s financial statements. If the financial manager actually intends to artificially inflate DEW’s profits this year, she must realize that such actions eventually will “catch up” with her. Discussion…
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Principles of Managerial Finance, Student Value Edition (15th Edition) (The Pearson Series in Finance)

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