PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 10, Problem 4PS
Summary Introduction
To conduct: A sensitivity analysis of replacement decision with a rate of discount.
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Assume that Monsanto Corporation is considering the replacement of some ofits older and outdated carpet-manu facturing
equipment. Its objective is to improve the efficiency of operations in terms of both speed and reduction in the number of
defects. The company's finance department has compiled pertinent data to conduct a marginal cost-benefit analysis for the
proposed equipment replacement.
The cash outlay for new equipment would be approximately $600,000. The net book value of the old equipment and its
potential net selling price add up to $250,000. The total benefits over the life of the new equipment (measured in today's
dollars) would be $900,000. The sum of benefits from the remaining life of the old equipment (measured in today's dollars)
would be $300,000.
To Do
Create a spreadsheet to conduct a marginal cost-benefit analysis for Monsanto Corporation, and determine the following:
a. The marginal benefits of the proposed new equipment.
b. The marg inal costs of the proposed new…
not use ai please
Analysis of a replacement project
At times firms will need to decide if they want to continue to use their current equipment or replace the equipment with newer equipment. In this case, the company will need to perform a replacement analysis to determine which alternative is the best financial decision for the company.
Consider the case of LoRusso Company:
The managers of LoRusso Company are considering replacing an existing piece of equipment, and have collected the following information:
•
The new piece of equipment will have a cost of $600,000, and it will be depreciated on a straight-line basis over a period of five years (years 1–5).
•
The old machine is also being depreciated on a straight-line basis. It has a book value of $200,000 (at year 0) and three more years of depreciation left ($50,000 per year).
•
The new equipment will have a salvage value of $0 at the end of the project's life (year 5). The old machine has a current salvage value (at year 0) of…
Chapter 10 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 10 - Terminology Match each of the following terms to...Ch. 10 - Project analysis True or false? a. Sensitivity...Ch. 10 - Sensitivity analysis Otobais staff (see Section...Ch. 10 - Prob. 4PSCh. 10 - Prob. 7PSCh. 10 - Scenario analysis What is the NPV of the electric...Ch. 10 - Prob. 9PSCh. 10 - Break-even analysis Break-even calculations are...Ch. 10 - Prob. 11PSCh. 10 - Prob. 12PS
Ch. 10 - Prob. 13PSCh. 10 - Break-even analysis A financial analyst has...Ch. 10 - Fixed and variable costs In a slow year, Deutsche...Ch. 10 - Operating leverage You estimate that your cattle...Ch. 10 - Prob. 17PSCh. 10 - Prob. 20PSCh. 10 - Real options Explain why options to expand or...Ch. 10 - Prob. 22PSCh. 10 - Real options True or false? a. Decision trees can...Ch. 10 - Prob. 24PSCh. 10 - Real options An auto plant that costs 100 million...Ch. 10 - Decision trees Look back at the Vegetron electric...Ch. 10 - Prob. 27PSCh. 10 - Prob. 28PSCh. 10 - Prob. 29PSCh. 10 - Prob. 32PS
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