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 5QP
OCF from Several Approaches [LO1] A proposed new project has projected sales of $164,000, costs of $87,000, and
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You've estimated the following cash flows (in $) for two mutually exclusive projects:
Year
Project A
Project B
0
-5,400
-8,100
1
1,325
1,325
2
2,148
2,148
3
3,958
7,725
The required return for both projects is 8%.
1. What is the IRR for project A?
2. What is the IRR for project B?
3. Which project seems better according to the IRR method?
4. What is the NPV for project A?
5. What is the NPV for project B?
6. Which project seems better according to the NPV method?
7. Compare the answers to parts 3 and 6. If both projects are mutually exclusive, which one should you accept?
Two mutually exclusive investment projects have the following forecasted cash flows:
Year
A
B
0
-$25,000
-$25,000
1
+10,000
0
2
+10,000
0
3
+10,000
0
4
+10,000
+50,000
Use Table II and Table IV to answer the questions.
Compute the internal rate of return for each project. Round your answers to one decimal place.IRRA: %
IRRB: %
Compute the net present value for each project if the firm has a 9 percent cost of capital. Round your answers to the nearest dollar.NPVA: $
NPVB: $
Which project should be adopted? Why?should be chosen because it has the higher . It is assumed that the firm's reinvestment opportunities are more accurately represented by the .
Consider an investment project with the cash flows given in the table below. Compute the IRR for this investment. Is the project acceptable at MARR = 10%?
The IRR for this project is %. (Round to one decimal place.)
n
0
1
2
3
Cash Flow
-$35,000
15,000
14,520
13,990
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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- Two mutually exclusive investment projects have the following forecasted cash flows: Year A B 0 -$20,000 -$20,000 1 +11,000 0 2 +11,000 0 3 +11,000 0 4 +11,000 +55,000 Use Table II and Table IV to answer the questions. Compute the internal rate of return for each project. Round your answers to one decimal place.IRRA: % IRRB: % Compute the net present value for each project if the firm has a 10 percent cost of capital. Round your answers to the nearest dollar.NPVA: $ NPVB: $ Which project should be adopted? Why? should be chosen because it has the higher . It is assumed that the firm's reinvestment opportunities are more accurately represented by the .arrow_forwardThis is an unconventional cash flow: Year O -$90 +$170 2 -$100 What would be the adjusted cash flow and what is the Modified Internal Rate of Return (MIRR) if the project's required rate of return is 15%? Utilizing three distinct approaches-discounting, reinvestment, and combination-to compute the cash flow and MIRR, each method is worth 10 points.arrow_forwardBarry Inc. is considering a project that has the following cash flow and WACC data. What is the project's MIRR? WACC = 9.75% Year 1 3 5 CFs -$53,600 8,010 16,020 24,030 32,040 40,050 2.arrow_forward
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