MyLab Finance with Pearson eText -- Access Card -- for Principles of Managerial Finance
15th Edition
ISBN: 9780134479903
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Textbook Question
Chapter 11, Problem 11.3P
Replacement versus expansion cash flows Tesla Systems has estimated the cash flows over the 5-year lives for two projects A and 8 These cash flows are summarized in the table below
| Project A | Project B | |
| Initial investment | –$4,650,000 | $1,550,000 |
| Year | Operating cash inflows | |
| 1 | $ 560,000 | $380,000 |
| 2 | 925,000 | 380,000 |
| 3 | 1,350,000 | 380,000 |
| 4 | 2,225,000 | 380,000 |
| 5 | 3,400,000 | 380,000 |
- a. If project A, which requires an initial investment of $4,650,000, is a replacement for project 8 and the $1,550,000 initial investment shown for project 8 is the after-tax
cash inflow expected from liquidating project 8, what would be the net cash flows for this replacement decision? - b. Instead, if project A is an expansion decision, what would be the net cash flows and how can it be viewed as a special form of a replacement decision? Explain.
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Chapter 11 Solutions
MyLab Finance with Pearson eText -- Access Card -- for Principles of Managerial Finance
Ch. 11.1 - Prob. 11.1RQCh. 11.1 - What three types of net cash flows may exist for a...Ch. 11.1 - Prob. 11.3RQCh. 11.1 - Prob. 11.4RQCh. 11.2 - Explain how to use each of the following inputs to...Ch. 11.2 - How do you calculate the book value of an asset?Ch. 11.2 - Prob. 11.7RQCh. 11.2 - Prob. 11.8RQCh. 11.3 - Prob. 11.9RQCh. 11.3 - Prob. 11.10RQ
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