Whether the firm operate the truck until the end of its 5-years physical life and if not, determine its optimal economic life.

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Answer 1

Question

Chapter 10, Problem 22P

a)

Summary Introduction

To determine: Whether the firm operate the truck until the end of its 5-years physical life and if not, determine its optimal economic life.

b)

Summary Introduction

To determine: Whether the introduction of salvage values, in addition to operating cash flows, ever decrease the expected NPV and/or IRR of a project.

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Sonja Jensen is considering the purchase of a fast-food franchise. Sonja will be operating on a lot that is to be converted into a parking lot in six years, but that may be rented in the interim for $700 per month. The franchise and necessary equipment will have a total initial cost of $68,000 and a salvage value of $9,000 (in today's dollars) after six years. Sonja is told that the future annual general inflation rate will be 5%. The projected operating revenues and expenses (in actual dollars) other than rent and depreciation for the business are given in the table below. Assume that the initial investment will be depreciated under the five-year MACRS and that Sonja's tax rate will be 30%. Sonja can invest her money at a rate of at least 14% in other investment activities during this inflation-ridden period. Click the icon to view the projected operating revenues and expenses. Click the icon to view the MACRS depreciation schedules. (a) Determine the cash flows associated with the…

Answer 2

Question

Chapter 10, Problem 22P

a)

Summary Introduction

To determine: Whether the firm operate the truck until the end of its 5-years physical life and if not, determine its optimal economic life.

b)

Summary Introduction

To determine: Whether the introduction of salvage values, in addition to operating cash flows, ever decrease the expected NPV and/or IRR of a project.

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Answer 3

Question

Chapter 10, Problem 22P

a)

Summary Introduction

To determine: Whether the firm operate the truck until the end of its 5-years physical life and if not, determine its optimal economic life.

b)

Summary Introduction

To determine: Whether the introduction of salvage values, in addition to operating cash flows, ever decrease the expected NPV and/or IRR of a project.

Expert Solution & Answer

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Answer 4

Question

Chapter 10, Problem 22P

a)

Summary Introduction

To determine: Whether the firm operate the truck until the end of its 5-years physical life and if not, determine its optimal economic life.

b)

Summary Introduction

To determine: Whether the introduction of salvage values, in addition to operating cash flows, ever decrease the expected NPV and/or IRR of a project.

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Answer 5

Chapter 10, Problem 22P

a)

Summary Introduction

To determine: Whether the firm operate the truck until the end of its 5-years physical life and if not, determine its optimal economic life.

b)

Summary Introduction

To determine: Whether the introduction of salvage values, in addition to operating cash flows, ever decrease the expected NPV and/or IRR of a project.

Answer 6

Chapter 10, Problem 22P

a)

Summary Introduction

To determine: Whether the firm operate the truck until the end of its 5-years physical life and if not, determine its optimal economic life.

Answer 7

Chapter 10, Problem 22P

a)

Summary Introduction

To determine: Whether the firm operate the truck until the end of its 5-years physical life and if not, determine its optimal economic life.

Answer 8

b)

Summary Introduction

To determine: Whether the introduction of salvage values, in addition to operating cash flows, ever decrease the expected NPV and/or IRR of a project.

Answer 9

b)

Summary Introduction

To determine: Whether the introduction of salvage values, in addition to operating cash flows, ever decrease the expected NPV and/or IRR of a project.

Answer 10

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Answer 11

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Answer 12

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Answer 13

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. 4P Ch. 10 - Prob. 5P

Whether the firm operate the truck until the end of its 5-years physical life and if not, determine its optimal economic life.

Solution Summary: The author explains that the firm should operate the truck until the end of its 5-years physical life and determine its optimal economic life. The introduction of salvage values will increase the NPV and IRR of a project.

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To determine: Whether the firm operate the truck until the end of its 5-years physical life and if not, determine its optimal economic life.

To determine: Whether the introduction of salvage values, in addition to operating cash flows, ever decrease the expected NPV and/or IRR of a project.

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Chapter 10 Solutions