Principles of Managerial Finance, Student Value Edition Plus NEW MyLab Finance with Pearson eText -- Access Card Package (14th Edition)
14th Edition
ISBN: 9780133740912
Author: Lawrence J. Gitman, Chad J. Zutter
Publisher: PEARSON
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Textbook Question
Chapter 10, Problem 1SE
Spreadsheet Exercise
The Drillago Company is involved in searching for locations in which to drill for oil. The firm’s current project requires an initial investment of $15 million and has an estimated life of 10 years. The expected future
| Year | Cash inflows |
| 1 | $ 600,000 |
| 2 | 1,000,000 |
| 3 | 1,000,000 |
| 4 | 2,000,000 |
| 5 | 3,000,000 |
| 6 | 3,500,000 |
| 7 | 4,000,000 |
| 8 | 6,000,000 |
| 9 | 8,000,000 |
| 10 | 12,000,000 |
The firm’s current cost of cap1tal 1s 13%.
To Do
Create a spreadsheet to answer the following questions.
- a. Calculate the project’s
net present value (NPV). Is the project acceptable under the NPV technique? Explain. - b. Calculate the project's
internal rate of return (IRR). Is the project acceptable under the IRR technique? Explain. - c. In this case, did the two methods produce the same results? Generally, is there a preference between the NPV and IRR techniques? Explain.
- d. Calculate the payback period for the project. If the firm usually accepts projects that have payback periods between 1 and 7 years, is this project acceptable?
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Chapter 10 Solutions
Principles of Managerial Finance, Student Value Edition Plus NEW MyLab Finance with Pearson eText -- Access Card Package (14th Edition)
Ch. 10.1 - What is the financial managers goal in selecting...Ch. 10.2 - Prob. 1FOPCh. 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. 10.10RQ
Ch. 10.5 - Prob. 1FOECh. 10.5 - How is a net present value profile used to compare...Ch. 10.5 - Prob. 10.13RQCh. 10 - Prob. 1ORCh. 10 - Prob. 10.1STPCh. 10 - Elysian Fields Inc. uses a maximum payback period...Ch. 10 - Prob. 10.2WUECh. 10 - Prob. 10.3WUECh. 10 - Prob. 10.4WUECh. 10 - Prob. 10.5WUECh. 10 - Prob. 10.1PCh. 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 - Prob. 10.25PCh. 10 - Integrative: Multiple IRRs Froogle Enterprises is...Ch. 10 - Integrative: Conflicting Rankings The High-Flying...Ch. 10 - ETHICS PROBLEM Diane Dennison is a financial...Ch. 10 - Spreadsheet Exercise The Drillago Company is...
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