Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
15th Edition
ISBN: 9780134476315
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Chapter 12, Problem 12.5WUE
Powerswitch Electric is faced with a capital budget of $150,000 for the coming year. It is considering six investment projects and has a cost of capital of 7%. The six projects along with their initial investments and their IRRs are listed in the following table. Using the data given, prepare an investment opportunities schedule (IOS). Which projects does the IOS suggest should be funded? Does this group of projects maximize
| Project | Initial investment | |
| 1 | –$75,000 | 8% |
| 2 | –40,000 | 10 |
| 3 | –35,000 | 7 |
| 4 | –50,000 | 11 |
| 5 | –45,000 | 9 |
| 6 | –20,000 | 6 |
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Jay is currently evaluating a project with the following estimated investment requirements ($ millions) by year (starting in year 0):
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11.2
1
16.6
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18
The estimated revenues ($ millions) from the project, expected to begin at time 3, are given in the table below:
\
investment year
reveune
0
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1
14
2
8.4
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14.7
4
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8.4
6
13.4
To account for the different risk characteristics throughout the project's life, Jay has determined that a hurdle rate of 24% should be used beginning at time 0, while 30% should be used beginning in period 5.
Determine the NPV for the project.
NPV =
Perform a financial analysis of a project assuming that the projected costs and benefits for this project are spread over four years as follows:
Estimated costs are $200,000 in Year 1 and $30,000 each year in Years 2,3 and 4.
Estimated benefits are $0 in year 1 and $100,000 each year in Years 2,3 and 4. Use a 9 percentage, discount rate, round the discount factors to two decimal places. Create a table of financial template on the paper to calculate and clearly display the NPV, ROI and year in which payback occurs with the help of a graph. In addition, write a paragraph explaining whether you would recommend investing in this project, based on your financial analysis.
Perform a financial analysis for a project using the format table provided in the picture below. Assume the projected costs and benefits for this project are spread over four years as follow: Estimated costs are $150,000 in Year 1 and $35,000 each year in Years 2, 3, and 4. Estimated benefits are $0 in Year 1 and $85,000 each year in Years 2, 3, and 4. Use a 12 percent discount rate and round the discount factors to two decimal places. Create a table to calculate and display the NPV, ROI, and year in which payback occurs.
Chapter 12 Solutions
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
Ch. 12.1 - Are most mutually exclusive capital budgeting...Ch. 12.2 - Prob. 12.2RQCh. 12.2 - Describe how each of the following behavioral...Ch. 12.3 - Briefly explain how the following items affect the...Ch. 12.4 - Describe the basic procedures involved in using...Ch. 12.4 - Explain why a firm whose stock is actively traded...Ch. 12.4 - Prob. 12.8RQCh. 12.5 - Explain why a mere comparison of the NPVs of...Ch. 12.5 - What are real options? What are some major types...Ch. 12.5 - What is the difference between the strategic NPV...
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