Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Chapter 12, Problem 11MC

In an unrelated analysis, you have the opportunity to choose between the following two mutually exclusive projects, Project T (which lasts for 2 years) and Project F (which lasts for 4 years):

Chapter 12, Problem 11MC, In an unrelated analysis, you have the opportunity to choose between the following two mutually

The projects provide a necessary service, so whichever one is selected is expected to be repeated into the foreseeable future. Both projects have a 10% cost of capital.

  1. (1) What is each project’s initial NPV without replication?
  2. (2) What is each project’s equivalent annual annuity?
  3. (3) Apply the replacement chain approach to determine the projects’ extended NPVs. Which project should be chosen?
  4. (4) Assume that the cost to replicate Project T in 2 years will increase to $105,000 due to inflation. How should the analysis be handled now, and which project should be chosen?
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(d) Estimate the value of a share of Cisco common stock using the discounted cash flow (DCF) model as of July 27, 2019 using the following assumptions Assumptions Discount rate (WACC) Common shares outstanding 7.60% 5,029.00 million Net nonoperating obligations (NNO) $(8,747) million NNO is negative, which means that Cisco has net nonoperating investments CSCO ($ millions) DCF Model Reported 2019 Forecast Horizon 2020 Est. 2021 Est. 2022 Est. 2023 Est. Terminal Period Increase in NOA FCFF (NOPAT - Increase in NOA) $ 1241 1303 1368 10673 11207 11767 1437 $ 12354 302 ✓ Present value of horizon FCFF 9918 9679 9445 ✔ 0 × Cum. present value of horizon FCFF $ 0 × Present value of terminal FCFF 0 ☑ Total firm value 0 ☑ NNO -8747 ✓ Firm equity value $ 0 ☑ Shares outstanding (millions) 5029 Stock price per share $ 40.05
Don't used hand raiting and don't used Ai solution
Don't used hand raiting and don't used Ai solution

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Intermediate Financial Management (MindTap Course List)

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