Financial Management: Theory & Practice
16th Edition
ISBN: 9781337909730
Author: Brigham
Publisher: Cengage
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Chapter 10, Problem 12MC
You are also considering another project that has a physical life of 3 years—that is, the machinery will be totally worn out after 3 years. However, if the project were terminated prior to the end of 3 years, the machinery would have a positive salvage value. Here are the project’s estimated cash flows:
Using the 10% cost of capital, what is the project’s
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Garden-Grow Products is considering a new investment whose data are shown below. The equipment would be depreciated on a straight-line basis over the
project's 3-year life, would have a zero salvage value, and would require some additional working capital that would be recovered at the end of the project's
life. Revenues and other operating costs are expected to be constant over the project's life. What is the project's NPV? (Hint: Cash flows are constant in Years
1 to 3.)
Project cost of capital (r)
Net investment in fixed assets (basis)
Required new working capital
Straight-line deprec. rate
Sales revenues, each year
Operating costs (excl. deprec.), each year
Tax rate
a. $31,573
b. $30,069
c. $36,550
d. $34,809
e. $33,152
10.0%
$75,000
$15,000
33.333%
$75,000
$25,000
25.0%
You are asked to evaluate a project proposal for Edmonton Plaza. The equipment that would be used would have a constant
annual capital cost allowance over the project's 3-year life and a zero salvage value. This project would require some
additional working capital that would be recovered at the end of the project's life. Revenues and cash operating costs are
expected to be constant over the project's 3-year life. What is the project's NPV? This question is worth 15% of your
grade.
WACC
10.0%
Net investment in fixed assets (basis)
65,000
Required new working capital
10,000
Annual capital cost allowance
21,665
Sales revenues, each year
70,000
Cash operating costs, each year
25,000
Tax rate
35.0%
O a. 26,584
O b. 28,913
O c. 24,111
O d. 22,318
Vaughn Company is considering a long-term investment project called ZIP. ZIP will require an investment of $122,200. It will have a
useful life of 4 years and no salvage value. Annual cash inflows would increase by $79,700, and annual cash outflows would increase by
$39,000. The company's required rate of return is 12%. Click here to view PV table.
Calculate the net present value on this project. (If the net present value is negative, use either a negative sign preceding the
number eg -45 or parentheses eg (45). Round present value answer to 0 decimal places, e.g. 125. For calculation purposes,
use 5 decimal places as displayed in the factor table provided.)
Net present value
Whether this project should be accepted?
The project should be
Chapter 10 Solutions
Financial Management: Theory & Practice
Ch. 10 - Define each of the following terms:
Capital...Ch. 10 - What types of projects require the least detailed...Ch. 10 - Explain why the NPV of a relatively long-term...Ch. 10 - When two mutually exclusive projects are being...Ch. 10 - Suppose a firm is considering two mutually...Ch. 10 - A project has an initial cost of 40,000, expected...Ch. 10 - Refer to Problem 10-1. What is the project’s IRR?
Ch. 10 - Refer to Problem 10-1. What is the projects MIRR?Ch. 10 - Prob. 4PCh. 10 - Prob. 5P
Ch. 10 - Prob. 6PCh. 10 - Your division is considering two investment...Ch. 10 - Edelman Engineering is considering including two...Ch. 10 - Davis Industries must choose between a gas-powered...Ch. 10 - Project S has a cost of 10,000 and is expected to...Ch. 10 - Your company is considering two mutually exclusive...Ch. 10 - Prob. 12PCh. 10 - Cummings Products is considering two mutually...Ch. 10 - Prob. 14PCh. 10 - Prob. 15PCh. 10 - Shao Airlines is considering the purchase of two...Ch. 10 - The Perez Company has the opportunity to invest in...Ch. 10 - Filkins Fabric Company is considering the...Ch. 10 - Prob. 19PCh. 10 - The Aubey Coffee Company is evaluating the...Ch. 10 - Your division is considering two investment...Ch. 10 - Prob. 22PCh. 10 - Start with the partial model in the file Ch10 P23...Ch. 10 - What is capital budgeting?Ch. 10 - Prob. 2MCCh. 10 - c. (1) Define the term net present value (NPV)....Ch. 10 - Prob. 4MCCh. 10 - Draw NPV profiles for Franchises L and S. At what...Ch. 10 - What is the underlying cause of ranking conflicts...Ch. 10 - Define the term modified IRR (MIRR). Find the...Ch. 10 - What does the profitability index (PI) measure?...Ch. 10 - (1) What is the payback period? Find the paybacks...Ch. 10 - Prob. 10MCCh. 10 - In an unrelated analysis, you have the opportunity...Ch. 10 - You are also considering another project that has...
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