Fundamentals of Financial Management (MindTap Course List)
15th Edition
ISBN: 9781337395250
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Chapter 12, Problem 17P
EQUIVALENT ANNUAL
| Time | Cash Flow X | Cash Flow Y |
| 0 | ($80,000) | ($75,000) |
| 1 | 40,000 | 35,000 |
| 2 | 60,000 | 35,000 |
| 3 | 70,000 | 35,000 |
| 4 | _ | 35,000 |
| 5 | _ | 5,000 |
Projects X and Y are equally risky and may be repeated indefinitely. If the firm’s WACC is 10%, what is the EAA of the project that adds the most value to the firm? (Round your final answer to the nearest whole dollar.)
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A firm has two mutually exclusive investment projects toevaluate. The projects have the following cash flows:
Projects X and Y are equally risky and may be repeated indefinitely. If the firm’s WACC is10%, what is the EAA of the project that adds the most value to the firm? (Round your finalanswer to the nearest whole dollar.)
Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both of their risk class is 8 percent, and that the maximum allowable
payback and discounted payback statistic for the projects are 2 and 3 years, respectively.
Time
1
2
3
Project A Cash Flow
Project B Cash Flow
-25,000
15,000
35,000
6,000
-35,000
15,000
25,000
55,000
Use the NPV decision rule to evaluate these projects; which one(s) should be accepted or rejected?
Multiple Choice
Accept A, reject B
Accept neither A nor B
Accept both A and B
Reject A, accept B
Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of
both of their risk class is 9 percent, and that the maximum allowable payback and discounted payback statistic for the projects are 2 and 3 years,
respectively.
Time
1
Project A Cash Flow
-36,000
26,000
46,000
17,000
Project B Cash Flow
-46,000
26,000
36,000
66,000
Use the NPV decision rule to evaluate these projects; which one(s) should be accepted or rejected?
Multiple Choice
Reject A, accept B
Accept A, reject B
Accept both A and B
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Chapter 12 Solutions
Fundamentals of Financial Management (MindTap Course List)
Ch. 12 - Operating cash flows rather than accounting income...Ch. 12 - Explain why sunk costs should not be included in a...Ch. 12 - Explain why net operating working capital is...Ch. 12 - Why are interest charges not deducted when a...Ch. 12 - Prob. 5QCh. 12 - What are some differences in the analysis for a...Ch. 12 - Distinguish among beta (or market) risk,...Ch. 12 - Prob. 8QCh. 12 - Prob. 9QCh. 12 - If you were the CFO of a company that had to...
Ch. 12 - What is a "replacement chain"? When and how should...Ch. 12 - What is an "equivalent annual annuity (EAA)"? When...Ch. 12 - Suppose a firm is considering two mutually...Ch. 12 - REQUIRED INVESTMENT Tannen Industries is...Ch. 12 - Prob. 2PCh. 12 - AFTER-TAX SALVAGE VALUE Karsted Air Services is...Ch. 12 - REPLACEMENT ANALYSIS The Oviedo Company is...Ch. 12 - EQUIVALENT ANNUAL ANNUITY Faleye Consulting is...Ch. 12 - DEPRECIATION METHODS Charlene is evaluating a...Ch. 12 - SCENARIO ANALYSIS Huang Industries is considering...Ch. 12 - NEW PROJECT ANALYSIS You must evaluate the...Ch. 12 - NEW PROJECT ANALYSIS You must evaluate a proposal...Ch. 12 - REPLACEMENT ANALYSIS The Dauten Toy Corporation...Ch. 12 - REPLACEMENT ANALYSIS St. Johns River Shipyards is...Ch. 12 - PROJECT RISK ANALYSIS The Butler-Perkins Company...Ch. 12 - UNEQUAL LIVES Crockett Graphic Designs Inc. is...Ch. 12 - UNEQUAL LIVES Overton Clothes Inc. is considering...Ch. 12 - REPLACEMENT CHAIN Rini Airlines is considering two...Ch. 12 - REPLACEMENT CHAIN The Lesseig Company has an...Ch. 12 - EQUIVALENT ANNUAL ANNUITY A firm has two mutually...Ch. 12 - SCENARIO ANALYSIS Your firm, Agrico Products, is...Ch. 12 - NEW PROJECT ANALYSIS Holmes Manufacturing is...Ch. 12 - REPLACEMENT ANALYSIS The Darlington Equipment...Ch. 12 - REPLACEMENT ANALYSIS The Bigbee Bottling Company...
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