To construct: NPV profile for the given project. Introduction: Capital Budgeting: It refers to the long-term investment decisions that has been taken by the top management of a company and that are irreversible in nature. These decisions require investment of large amount of cash of the company. Net Present Value (NPV): It is a method under capital budgeting which includes the computation of the net present value of the project in which company is investing. The calculation is done by calculating the difference between the value of cash inflow and value of cash outflow after taking into consideration the discounted rate.

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Answer 1

Question

Chapter 11, Problem 19P

a.

Summary Introduction

To construct: NPV profile for the given project.

Introduction:

Capital Budgeting:

It refers to the long-term investment decisions that has been taken by the top management of a company and that are irreversible in nature. These decisions require investment of large amount of cash of the company.

Net Present Value (NPV):

It is a method under capital budgeting which includes the computation of the net present value of the project in which company is investing. The calculation is done by calculating the difference between the value of cash inflow and value of cash outflow after taking into consideration the discounted rate.

b.

Summary Introduction

To explain: Whether the project should be accepted or not at 10% WACC and 20% WACC.

c.

Summary Introduction

To identify: A situation where the negative cash flows during or at the last of the project’s life might lead to multiple internal rate of return.

Introduction:

Internal Rate of Return (IRR):

It refers to the rate of return that is computed by the company to make a decision of selection of a project for investment. This rate provides the basis for selection of projects with a lower cost of capital and rejection of project with a higher cost of capital.

d.

Summary Introduction

To calculate: MIRR of the project at 10% and 20% WACC.

Introduction:

Modified Internal Rate of Return (MIRR):

It refers to the rate of return that is computed by the company to make a decision of selection and ranking of a project for investment. This is a modified version of IRR with reinvestment of cash flows at the cost of capital.

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Replacement Analysis The Everly Equipment Company's flange-lipping machine was purchased 5 years ago for $75,000. It had an expected life of 10 years when it was bought and its remaining depreciation is $7,500 per year for each year of its remaining life. As older flange-lippers are robust and useful machines, this one can be sold for $20,000 at the end of its useful life. A new high-efficiency digital-controlled flange-lipper can be purchased for $130,000, including installation costs. During its 5-year life, it will reduce cash operating expenses by $45,000 per year, although it will not affect sales. At the end of its useful life, the high-efficiency machine is estimated to be worthless. MACRS depreciation will be used, and the machine will be depreciated over its 3-year class life rather than its 5-year economic life, so the applicable depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%. The old machine can be sold today for $50,000. The firm's tax rate is 25%, and the…

Answer 2

Question

Chapter 11, Problem 19P

a.

Summary Introduction

To construct: NPV profile for the given project.

Introduction:

Capital Budgeting:

It refers to the long-term investment decisions that has been taken by the top management of a company and that are irreversible in nature. These decisions require investment of large amount of cash of the company.

Net Present Value (NPV):

It is a method under capital budgeting which includes the computation of the net present value of the project in which company is investing. The calculation is done by calculating the difference between the value of cash inflow and value of cash outflow after taking into consideration the discounted rate.

b.

Summary Introduction

To explain: Whether the project should be accepted or not at 10% WACC and 20% WACC.

c.

Summary Introduction

To identify: A situation where the negative cash flows during or at the last of the project’s life might lead to multiple internal rate of return.

Introduction:

Internal Rate of Return (IRR):

It refers to the rate of return that is computed by the company to make a decision of selection of a project for investment. This rate provides the basis for selection of projects with a lower cost of capital and rejection of project with a higher cost of capital.

d.

Summary Introduction

To calculate: MIRR of the project at 10% and 20% WACC.

Introduction:

Modified Internal Rate of Return (MIRR):

It refers to the rate of return that is computed by the company to make a decision of selection and ranking of a project for investment. This is a modified version of IRR with reinvestment of cash flows at the cost of capital.

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Answer 3

Question

Chapter 11, Problem 19P

a.

Summary Introduction

To construct: NPV profile for the given project.

Introduction:

Capital Budgeting:

It refers to the long-term investment decisions that has been taken by the top management of a company and that are irreversible in nature. These decisions require investment of large amount of cash of the company.

Net Present Value (NPV):

It is a method under capital budgeting which includes the computation of the net present value of the project in which company is investing. The calculation is done by calculating the difference between the value of cash inflow and value of cash outflow after taking into consideration the discounted rate.

b.

Summary Introduction

To explain: Whether the project should be accepted or not at 10% WACC and 20% WACC.

c.

Summary Introduction

To identify: A situation where the negative cash flows during or at the last of the project’s life might lead to multiple internal rate of return.

Introduction:

Internal Rate of Return (IRR):

It refers to the rate of return that is computed by the company to make a decision of selection of a project for investment. This rate provides the basis for selection of projects with a lower cost of capital and rejection of project with a higher cost of capital.

d.

Summary Introduction

To calculate: MIRR of the project at 10% and 20% WACC.

Introduction:

Modified Internal Rate of Return (MIRR):

It refers to the rate of return that is computed by the company to make a decision of selection and ranking of a project for investment. This is a modified version of IRR with reinvestment of cash flows at the cost of capital.

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Answer 4

Question

Chapter 11, Problem 19P

a.

Summary Introduction

To construct: NPV profile for the given project.

Introduction:

Capital Budgeting:

It refers to the long-term investment decisions that has been taken by the top management of a company and that are irreversible in nature. These decisions require investment of large amount of cash of the company.

Net Present Value (NPV):

It is a method under capital budgeting which includes the computation of the net present value of the project in which company is investing. The calculation is done by calculating the difference between the value of cash inflow and value of cash outflow after taking into consideration the discounted rate.

b.

Summary Introduction

To explain: Whether the project should be accepted or not at 10% WACC and 20% WACC.

c.

Summary Introduction

To identify: A situation where the negative cash flows during or at the last of the project’s life might lead to multiple internal rate of return.

Introduction:

Internal Rate of Return (IRR):

It refers to the rate of return that is computed by the company to make a decision of selection of a project for investment. This rate provides the basis for selection of projects with a lower cost of capital and rejection of project with a higher cost of capital.

d.

Summary Introduction

To calculate: MIRR of the project at 10% and 20% WACC.

Introduction:

Modified Internal Rate of Return (MIRR):

It refers to the rate of return that is computed by the company to make a decision of selection and ranking of a project for investment. This is a modified version of IRR with reinvestment of cash flows at the cost of capital.

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Answer 5

Chapter 11, Problem 19P

a.

Summary Introduction

To construct: NPV profile for the given project.

Introduction:

Capital Budgeting:

It refers to the long-term investment decisions that has been taken by the top management of a company and that are irreversible in nature. These decisions require investment of large amount of cash of the company.

Net Present Value (NPV):

It is a method under capital budgeting which includes the computation of the net present value of the project in which company is investing. The calculation is done by calculating the difference between the value of cash inflow and value of cash outflow after taking into consideration the discounted rate.

b.

Summary Introduction

To explain: Whether the project should be accepted or not at 10% WACC and 20% WACC.

c.

Summary Introduction

To identify: A situation where the negative cash flows during or at the last of the project’s life might lead to multiple internal rate of return.

Introduction:

Internal Rate of Return (IRR):

It refers to the rate of return that is computed by the company to make a decision of selection of a project for investment. This rate provides the basis for selection of projects with a lower cost of capital and rejection of project with a higher cost of capital.

d.

Summary Introduction

To calculate: MIRR of the project at 10% and 20% WACC.

Introduction:

Modified Internal Rate of Return (MIRR):

It refers to the rate of return that is computed by the company to make a decision of selection and ranking of a project for investment. This is a modified version of IRR with reinvestment of cash flows at the cost of capital.

Answer 6

Chapter 11, Problem 19P

a.

Summary Introduction

To construct: NPV profile for the given project.

Introduction:

Capital Budgeting:

It refers to the long-term investment decisions that has been taken by the top management of a company and that are irreversible in nature. These decisions require investment of large amount of cash of the company.

Net Present Value (NPV):

It is a method under capital budgeting which includes the computation of the net present value of the project in which company is investing. The calculation is done by calculating the difference between the value of cash inflow and value of cash outflow after taking into consideration the discounted rate.

Answer 7

Chapter 11, Problem 19P

a.

Summary Introduction

To construct: NPV profile for the given project.

Introduction:

Capital Budgeting:

It refers to the long-term investment decisions that has been taken by the top management of a company and that are irreversible in nature. These decisions require investment of large amount of cash of the company.

Net Present Value (NPV):

It is a method under capital budgeting which includes the computation of the net present value of the project in which company is investing. The calculation is done by calculating the difference between the value of cash inflow and value of cash outflow after taking into consideration the discounted rate.

Answer 8

b.

Summary Introduction

To explain: Whether the project should be accepted or not at 10% WACC and 20% WACC.

Answer 9

b.

Summary Introduction

To explain: Whether the project should be accepted or not at 10% WACC and 20% WACC.

Answer 10

c.

Summary Introduction

To identify: A situation where the negative cash flows during or at the last of the project’s life might lead to multiple internal rate of return.

Introduction:

Internal Rate of Return (IRR):

It refers to the rate of return that is computed by the company to make a decision of selection of a project for investment. This rate provides the basis for selection of projects with a lower cost of capital and rejection of project with a higher cost of capital.

Answer 11

c.

Summary Introduction

To identify: A situation where the negative cash flows during or at the last of the project’s life might lead to multiple internal rate of return.

Introduction:

Internal Rate of Return (IRR):

It refers to the rate of return that is computed by the company to make a decision of selection of a project for investment. This rate provides the basis for selection of projects with a lower cost of capital and rejection of project with a higher cost of capital.

Answer 12

d.

Summary Introduction

To calculate: MIRR of the project at 10% and 20% WACC.

Introduction:

Modified Internal Rate of Return (MIRR):

It refers to the rate of return that is computed by the company to make a decision of selection and ranking of a project for investment. This is a modified version of IRR with reinvestment of cash flows at the cost of capital.

Answer 13

d.

Summary Introduction

To calculate: MIRR of the project at 10% and 20% WACC.

Introduction:

Modified Internal Rate of Return (MIRR):

It refers to the rate of return that is computed by the company to make a decision of selection and ranking of a project for investment. This is a modified version of IRR with reinvestment of cash flows at the cost of capital.

Answer 14

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Ch. 11 - How are project classifications used in the...Ch. 11 - Prob. 2Q Ch. 11 - Why is the NFV of a relatively long-term project...Ch. 11 - Prob. 4Q Ch. 11 - If two mutually exclusive projects were being...Ch. 11 - Discuss the following statement: If a firm has...Ch. 11 - Prob. 7Q Ch. 11 - Project X is very risky and has an NPV of 3...Ch. 11 - Prob. 9Q Ch. 11 - A firm has a 100 million capital budget. It is...

Solution Summary: The author explains the NPV profile for the given project. Capital budgeting is the long-term investment decisions that require investment of large amount of cash.

To explain: Whether the project should be accepted or not at 10% WACC and 20% WACC.

Chapter 11 Solutions