Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 12, Problem 14PS
a)
Summary Introduction
To determine: Economic value added (EVA).
b)
Summary Introduction
To determine: Economic value added (EVA).
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Dogwood Company is considering a capital investment in machinery:
(Click the icon to view the data.)
8.
Calculate the payback.
9.
Calculate the ARR. Round the percentage to two decimal places.
10. Based on your answers to the above questions, should Dogwood invest in the machinery?
8. Calculate the payback.
Amount invested
Expected annual net cash inflow
Payback
1,500,000
24
500,000
3
years
9. Calculate the ARR. Round the percentage to two decimal places.
Average annual operating income
Average amount invested
ARR
Data Table
Initial investment
$
1,500,000
Residual value
350,000
Expected annual net cash inflows
500,000
Expected useful life
4 years
Required rate of return
15%
The table below shows a condensed income statement and bal-
ance sheet for a plant. Calculate the plant's EVA. Assume the
cost of capital is 10%.
Income Statement
Assets at 31.12.2020
Revenue
58.3 Net working capital
10.8
Raw materials cost 15.6
Operating cost
Depreciation
24.2 Plant & equipment
4.5 Less acc. depreciation 24.3
14 Net plant & equipment 40.8
65.1
Pretax income
Tax at 35%
4.9
Net income
9.1 Total assets
51.6
Dock Company is considering a capital investment in machinery:
E (Click the icon to view the data.)
8.
Calculate the payback.
9.
Calculate the ARR. Round the percentage to two decimal places.
10. Based on your answers to the above questions, should Dock invest in the machinery?
8. Calculate the payback.
Payback
years
- X
Data Table
Initial investment
$
1,500,000
Residual value
350,000
Expected annual net cash inflows
500,000
Expected useful life
4 years
Required rate of return
9%
Print
Done
Chapter 12 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 12 - Prob. 1PSCh. 12 - Terminology Define the following: a. Agency costs...Ch. 12 - Prob. 3PSCh. 12 - EVA Here are several questions about economic...Ch. 12 - Accounting measures of performance The Modern...Ch. 12 - Economic income Fill in the blanks: A projects...Ch. 12 - Prob. 7PSCh. 12 - Prob. 8PSCh. 12 - Prob. 9PSCh. 12 - Prob. 10PS
Ch. 12 - Management compensation We noted that management...Ch. 12 - Prob. 12PSCh. 12 - Prob. 13PSCh. 12 - Prob. 14PSCh. 12 - EVA Herbal Resources is a small but profitable...Ch. 12 - Prob. 16PSCh. 12 - Economic income Consider the following project:...Ch. 12 - EVA Use the Beyond the Page feature to access the...Ch. 12 - Accounting measures of performance Use the Beyond...Ch. 12 - EVA Ohio Building Products (OBP) is considering...
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