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
expand_more
expand_more
format_list_bulleted
Concept explainers
Textbook Question
Chapter 10, Problem 5QP
OCF from Several Approaches [LO1] A proposed new project has projected sales of $164,000, costs of $87,000, and
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
H1.
Account
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?
Consider the following cash flows: Year
0
1
2
3
4
5
6
Cash Flow
-$9,000
$2,000
$3,600
$2,700
$2,100
$2,100
$1,600
C. IRR. Calculate the IRR for this project. The company’s required rate of return is 10%. Should it be accepted or rejected?
D. NPV. Using a 10% required rate of return, calculate the NPV for this project. Should it be accepted or rejected?
E. PI. Calculate the Profitability Index (PI) for this project. Should it be accepted or rejected?
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...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- A project has the following cash flows: Year Cash Flows 0 $ 128,200 12 1 2 3 4 49,400 63,800 51,600 28,100 The required return is 8.7 percent. What is the profitability index for this project? Multiple Choice 1.142 1.003 .803 1.038arrow_forwardYou are considering two projects with the following cash flows: Project X Project Y Year 1 $7,000 $5,000 Year 2 6,000 4,000 Year 3 4,000 3,000 Year 4 1,000 6,000 Which of the following statements are true concerning these two projects? I. Both projects have the same future value at the end of year 4, given a positive rate of return. II. Project X has a higher present value than Project Y, given a positive discount rate. III. Both projects have the same future value given a zero rate of return. IV. Project Y has a higher present value than Project X, given a positive discount rate. Multiple choice options: II only I and III only II and III only II and IV only I, III, and IV onlyarrow_forwardConsider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) -$ 15,456 5,225 8,223 13,013 8,705 0 1 234 -$ 276,363 26,400 51,000 57,000 402,000 Whichever project you choose, if any, you require a 6 percent return on your investment. a. What is the payback period for Project A? Payback period b. What is the payback period for Project B? Payback period c. What is the discounted payback period for Project A? Discounted payback periodarrow_forward
- 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 13,990arrow_forwardThis is an unconventional cash flow: Year O -$90 +$170 2 -$100 What would be the adjusted cash flow and what is the Modified Internal Rate of Return (MIRR) if the project's required rate of return is 15%? Utilizing three distinct approaches-discounting, reinvestment, and combination-to compute the cash flow and MIRR, each method is worth 10 points.arrow_forwardConsider the following two mutually exclusive projects: Year Cash Flow(A) -$ 63,000 39,000 33,000 22,500 14,600 Cash Flow(B) -$ 63,000 25,700 29,700 35,000 24,700 4 1-What is the IRR for each project? Project A Project B % % 2.IF you apply the IRR decision rule, which project should ti 3.Assume the required return is 14 percent. What is the NP Project A Project B 0123arrow_forward
- Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$240,000 -$150,000 1 $100,000 $100,000 2 $95,000 $50,000 3 $45,000 $5,000 4 $90,000 $3,000 Whichever project you choose, if any, you require a return of 13% on your investment. a. If you apply the payback criterion, which investment will you choose? Why? b. If you apply the NPV criterion, which investment will you choose? Why? c. Based on your answers in (a) and (b), which project will you finally choose? Why?arrow_forwardConsider the following two mutually exclusive projects:Year Cash Flow (X) Cash Flow (Y)0 -$365,000 -$38,0001 25,000 16,0002 65,000 12,0003 65,000 17,0004 425,000 15,000Whichever project you choose, if any, you require a 13 percent return on your investment. i. Which investment will you choose if you use the payback decision criteria? Justify your answer.ii. Which investment will you choose if you use the NPV decision criteria? Justify your answer.iii. Which project will you choose ultimately based on your answers above?arrow_forwardPls complete step and explain formula tooarrow_forward
- Your company has a project available with the following cash flows: Year Cash Flow -$80,700 21,700 25,400 31,200 3 4 26,200 20,200 If the required return is 15 percent, should the project be accepted based on the IRR? Multiple Cholce No. because the IRR Is 16.51 percent. Yes, because the IRR Is 17.88 percent. Yes, because the IRR Is 17.19 percent. Yes, because the IRR Is 16.51 percent. No, because the IRR Is 17.88 percent.arrow_forwardManagement is evaluating two mutually exclusive projects, Thing 1 and thing 2, with the following cash flows: Year. Thing 1. Thing 2 1. -$10, 000. -$10,000 2. 3,293 0 3. 3,293. 0 4. 3,293. 0 5. 3,293. 0 a. If the required rate on return of both projects is 5%, which project, if either should management choose? Why? b. If the required rate on return of both projects is 8%, which project, if either, should management choose? Why? c. If the required rate of return on both projects is 11%, which project, if either should management choose? Why? d. If the required rate of return on both projects is 14% which project, if either should management choose? Why? e. On a graph, draw the investment profiles of Thing 1 and Thing 2. Indicate the following items: -…arrow_forwardの Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) -$ -$ 0 354,000 48,000 1 41,000 23,600 234 61,000 21,600 61,000 19,100 436,000 14,200 Whichever project you choose, if any, you require a return of 14 percent on your investment.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
- Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningCorporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education
Capital Budgeting Introduction & Calculations Step-by-Step -PV, FV, NPV, IRR, Payback, Simple R of R; Author: Accounting Step by Step;https://www.youtube.com/watch?v=hyBw-NnAkHY;License: Standard Youtube License