The way net present value approach complement with the goal of optimizing the wealth of shareholders.

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Answer 1

Question

Chapter 10, Problem 1QTD

Summary Introduction

To discuss: The way net present value approach complement with the goal of optimizing the wealth of shareholders.

Expert Solution & Answer

Explanation of Solution

The net present value approach measures the present values of benefits of a project over its costs, calculated by using cost of capital of the company. When a project has a positive NPV, it means that, investors earning minimum rate of returns that are determined by cost of capital of the company and something additional is being received.

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Question Three A company needs $10,000 in 5 years to replace a piece of equipment. How much must be invested now at an interest rate of 8% p.a. compounded daily in order to provide for this replacement?

Year Free Cash Flow (FCF) 0 -$17,000,000 1 $4,980,000 2 $4,980,000 3 $4,980,000 4 $4,980,000 5 $6,980,000 The Net Present Value at a discount rate of 15%: Present Value (PV) for each year: PV(Year 1) = $4,980,000 ÷ (1 + 0.15)^1 = $4,330,435. PV(Year 2) = $4,980,000 ÷ (1 + 0.15)^2 = $3,765,590. PV(Year 3) = $4,980,000 ÷ (1 + 0.15)^3 = $3,274,426. PV(Year 4) = $4,980,000 ÷ (1 + 0.15)^4 = $2,847,328. PV(Year 5) = $6,980,000 ÷ (1 + 0.15)^5 = $3,477,617. Sum of PVs = $4,330,435 + $3,765,590 + $3,274,426 + $2,847,328 + $3,477,617 = $17,695,396. Initial Investment = $17,000,000. NPV = Total PV - Initial Investment = $17,695,396 - $17,000,000 = $695,396. Calculate The Internal Rate of Return

Please solve this question by using appropriate method.

Answer 2

Question

Chapter 10, Problem 1QTD

Summary Introduction

To discuss: The way net present value approach complement with the goal of optimizing the wealth of shareholders.

Expert Solution & Answer

Explanation of Solution

The net present value approach measures the present values of benefits of a project over its costs, calculated by using cost of capital of the company. When a project has a positive NPV, it means that, investors earning minimum rate of returns that are determined by cost of capital of the company and something additional is being received.

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Answer 3

Question

Chapter 10, Problem 1QTD

Summary Introduction

To discuss: The way net present value approach complement with the goal of optimizing the wealth of shareholders.

Expert Solution & Answer

Explanation of Solution

The net present value approach measures the present values of benefits of a project over its costs, calculated by using cost of capital of the company. When a project has a positive NPV, it means that, investors earning minimum rate of returns that are determined by cost of capital of the company and something additional is being received.

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Answer 4

Question

Chapter 10, Problem 1QTD

Summary Introduction

To discuss: The way net present value approach complement with the goal of optimizing the wealth of shareholders.

Expert Solution & Answer

Explanation of Solution

The net present value approach measures the present values of benefits of a project over its costs, calculated by using cost of capital of the company. When a project has a positive NPV, it means that, investors earning minimum rate of returns that are determined by cost of capital of the company and something additional is being received.

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Answer 5

Chapter 10, Problem 1QTD

Summary Introduction

To discuss: The way net present value approach complement with the goal of optimizing the wealth of shareholders.

Expert Solution & Answer

Explanation of Solution

The net present value approach measures the present values of benefits of a project over its costs, calculated by using cost of capital of the company. When a project has a positive NPV, it means that, investors earning minimum rate of returns that are determined by cost of capital of the company and something additional is being received.

Answer 6

Chapter 10, Problem 1QTD

Summary Introduction

To discuss: The way net present value approach complement with the goal of optimizing the wealth of shareholders.

Expert Solution & Answer

Explanation of Solution

The net present value approach measures the present values of benefits of a project over its costs, calculated by using cost of capital of the company. When a project has a positive NPV, it means that, investors earning minimum rate of returns that are determined by cost of capital of the company and something additional is being received.

Answer 7

Chapter 10, Problem 1QTD

Summary Introduction

To discuss: The way net present value approach complement with the goal of optimizing the wealth of shareholders.

Answer 8

Expert Solution & Answer

Explanation of Solution

The net present value approach measures the present values of benefits of a project over its costs, calculated by using cost of capital of the company. When a project has a positive NPV, it means that, investors earning minimum rate of returns that are determined by cost of capital of the company and something additional is being received.