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Chapter 10.3, Problem 10.6RQ
Summary Introduction

To discuss:

The similarities and differences between NPV, PI and EVA.

Introduction:

The difference between the present value of cash inflows and the present value of cash outflows over a period of time is known as the Net Present value. NPV is used in capital budgeting as a criterion to analyze the profitability of projects. PI is the Profitability Index which is an index that measures that the costs and benefits of a project as the ratio of present value of future cash flows to the initial investment. EVA is the Economic Value Added which is a measure of the economic profit of the company. EVA is calculated by deducting the cost of capital from the operating profit after adjusting for taxes.

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ng Equipment is worth $998,454. It is expected to produce regular cash flows of $78,377 per year for 20 years and a special cash flow of $34,800 in 20 years. The cost of capital is X percent per year and the first regular cash flow will be produced in 1 year. What is X? Input instructions: Input your answer as the number that appears before the percentage sign. For example, enter 9.86 for 9.86% (do not enter .0986 or 9.86%). Round your answer to at least 2 decimal places. percent
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Chapter 10 Solutions

Principles of Managerial Finance, Student Value Edition Plus MyLab Finance with Pearson eText - Access Card Package (15th Edition) (Pearson Series in Finance)

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