Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 10, Problem 16QP
Calculating EAC [LO4] A five-year project has an initial fixed asset investment of $290,000, an initial NWC investment of $25,000, and an annual OCF of –$35,000. The fixed asset is fully
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H5.
Q3 7a
7. XYZ Co. is evaluating whether to invest in a project with the following information:
Project cost = $950,000
Project life = five years
Projected number of units sold per year = 10,000
Projected price per unit = $200
Projected variable cost per unit = 150
Fixed costs per year = $150,000
Required rate of return = 15%
Marginal tax rate = 35%
Assume straight-line depreciation to zero over five years, and ignore the half-year rule for accounting for depreciation.
a. Calculate the cash break-even sales quantity for this project.
which project is more profitable to undertake? $60 million npv for 10 years or $70 million for 30 years if the projects are not repeated?
Chapter 10 Solutions
Fundamentals of Corporate Finance
Ch. 10.1 - What are the relevant incremental cash flows for...Ch. 10.1 - What is the stand-alone principle?Ch. 10.2 - Prob. 10.2ACQCh. 10.2 - Prob. 10.2BCQCh. 10.2 - Explain why interest paid is not a relevant cash...Ch. 10.3 - What is the definition of project operating cash...Ch. 10.3 - For the shark attractant project, why did we add...Ch. 10.4 - Prob. 10.4ACQCh. 10.4 - How is depreciation calculated for fixed assets...Ch. 10.5 - Prob. 10.5ACQ
Ch. 10.5 - Prob. 10.5BCQCh. 10.6 - Prob. 10.6ACQCh. 10.6 - Under what circumstances do we have to worry about...Ch. 10 - Prob. 10.1CTFCh. 10 - What should NOT be included as an incremental cash...Ch. 10 - Prob. 10.3CTFCh. 10 - An asset costs 24,000 and is classified as...Ch. 10 - Prob. 10.5CTFCh. 10 - Prob. 10.6CTFCh. 10 - Opportunity Cost [LO1] In the context of capital...Ch. 10 - Depreciation [LO1] Given the choice, would a firm...Ch. 10 - Net Working Capital [LO1] In our capital budgeting...Ch. 10 - Stand-Alone Principle [LO1] Suppose a financial...Ch. 10 - Prob. 5CRCTCh. 10 - Cash Flow and Depreciation [LOI] When evaluating...Ch. 10 - Capital Budgeting Considerations [LOI] A major...Ch. 10 - Prob. 8CRCTCh. 10 - Prob. 9CRCTCh. 10 - Prob. 10CRCTCh. 10 - Relevant Cash Flows [LO1] Parker Slone, Inc., is...Ch. 10 - Prob. 2QPCh. 10 - Calculating Projected Net Income [LO1] A proposed...Ch. 10 - Calculating OCF [LO1] Consider the following...Ch. 10 - OCF from Several Approaches [LO1] A proposed new...Ch. 10 - Calculating Depreciation [LO1] A piece of newly...Ch. 10 - Calculating Salvage Value [LO1] Consider an asset...Ch. 10 - Calculating Salvage Value [LO1] An asset used in a...Ch. 10 - Calculating Project OCF [LO1] Quad Enterprises is...Ch. 10 - Calculating Project NPV [LO1] In the previous...Ch. 10 - Prob. 11QPCh. 10 - NPV and Modified ACRS [LO1] In the previous...Ch. 10 - Project Evaluation [LO1] Dog Up! Franks is looking...Ch. 10 - Project Evaluation [LO1] Your firm is...Ch. 10 - Prob. 15QPCh. 10 - Calculating EAC [LO4] A five-year project has an...Ch. 10 - Calculating EAC [LO4] You are evaluating two...Ch. 10 - Calculating a Bid Price [LO3] Romo Enterprises...Ch. 10 - Cost-Cutting Proposals [LO2] Warmack Machine Shop...Ch. 10 - Comparing Mutually Exclusive Projects [LO1] Lang...Ch. 10 - Prob. 21QPCh. 10 - Prob. 22QPCh. 10 - Prob. 23QPCh. 10 - Comparing Mutually Exclusive Projects [LO4]...Ch. 10 - Equivalent Annual Cost [LO4] Compact fluorescent...Ch. 10 - Break-Even Cost [LO2] The previous problem...Ch. 10 - Break-Even Replacement [LO2] The previous two...Ch. 10 - Issues in Capital Budgeting [LO1] The debate...Ch. 10 - Replacement Decisions [LO2] Your small remodeling...Ch. 10 - Replacement Decisions [LO2] In the previous...Ch. 10 - Calculating Project NPV [LO1] You have been hired...Ch. 10 - Prob. 32QPCh. 10 - Calculating Required Savings [LO2] A proposed...Ch. 10 - Prob. 34QPCh. 10 - Calculating a Bid Price [LO3] Your company has...Ch. 10 - Replacement Decisions [LO2] Suppose we are...Ch. 10 - Conch Republic Electronics, Part 1 Conch Republic...Ch. 10 - Conch Republic Electronics, Part 1 Conch Republic...Ch. 10 - Conch Republic Electronics, Part 1 Conch Republic...Ch. 10 - Conch Republic Electronics, Part 1 Conch Republic...
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- Q3 7c 7. XYZ Co. is evaluating whether to invest in a project with the following information: Project cost = $950,000 Project life = five years Projected number of units sold per year = 10,000 Projected price per unit = $200 Projected variable cost per unit = 150 Fixed costs per year = $150,000 Required rate of return = 15% Marginal tax rate = 35% Assume straight-line depreciation to zero over five years, and ignore the half-year rule for accounting for depreciation. c. Calculate the financial break-even sales quantity for this project.arrow_forward4arrow_forwardProject Evaluation [LO1] Dog Up! Franks is looking at a new sausage systemwith an installed cost of $460,000. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the sausage system can be scrapped for $55,000. The sausage system will save the firm $155,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $29,000. If the tax rate is 21 percent and the discount rate is 10 percent, what is the NPV of this project?arrow_forward
- A3 8aii You are considering a new product launch. The project will cost $680,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 100 units per year, price per unit will be $19,000, variable cost per unit will be $14,000, and fixed costs will be $150,000 per year. The required return on the project is 15%, and the relevant tax rate is 35%. Ignore the half-year rule for accounting for depreciation. a. Calculate the following six numbers for this project. Round your answers to two decimal places. (ii) Profitability Index (PI)arrow_forwardyear payback period criteria and a required return of 12 percent. |Year Cash flow |(OMR) -26,000 18,000 10,000 7,000 -15,000 9,000 2 3 4 11. What is the net present value for the project? 12. What is the payback period for the project? 13. What is the discounted payback period for the project? 14. What is the profitability index for the project? 15. Given your analysis, should the fim accept or reject the projeet?arrow_forward16arrow_forward
- 13. Project Analysis You are considering a new product launch. The project will cost$720,000, have a 4-year life, and have no salvage value; depreciation is straight-line tozero. Sales are projected at 380 units per year; price per unit will be $17,400; variablecost per unit will be $14,100; and fixed costs will be $680,000 per year. The requiredreturn on the project is 15 percent and the relevant tax rate is 21 percent.a. Based on your experience, you think the unit sales, variable cost, and fixed costprojections given here are probably accurate to within ±10 percent. What are theupper and lower bounds for these projections? What is the base-case NPV? What arethe best-case and worst-case scenarios?b. Evaluate the sensitivity of your base-case NPV to changes in fixed costs.c. What is the accounting break-even level of output for this project?arrow_forwardQUESTION 1 XYZ is evaluating a project that would require an initial investment of $72,300.00 today. The project is expected to produce annual cash flows of $8,400.00 each year forever with the first annual cash flow expected in 1 year. The NPV of the project is $7,500.00. What is the IRR of the project? O 11.62% (plus or minus 0.02 percentage points) 10.53% (plus or minus 0.02 percentage points) 10.37% (plus or minus 0.02 percentage points) 12.96% (plus or minus 0.02 percentage points) O None of the above is within 0.02 percentage points of the correct answerarrow_forwardA 15. Subject:- financearrow_forward
- ni.3 Nevland Corporation is considering the purchase of a machine that would cost $120, 000 and would last for 6 years. At the end of 6 years, the machine would have a salvage value of $18,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $43,000. The company requires a minimum pretax return of 19% on all investment projects. The net present value of the proposed project is closest A) $32,966 B) $26,376 C) $64,902 D) $30,040arrow_forwardQw.25.arrow_forwardQ3 7b 7. XYZ Co. is evaluating whether to invest in a project with the following information: Project cost = $950,000 Project life = five years Projected number of units sold per year = 10,000 Projected price per unit = $200 Projected variable cost per unit = 150 Fixed costs per year = $150,000 Required rate of return = 15% Marginal tax rate = 35% Assume straight-line depreciation to zero over five years, and ignore the half-year rule for accounting for depreciation. b. Calculate the accounting break-even sales quantity for this project.arrow_forward
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