Foundations of Financial Management
16th Edition
ISBN: 9781259277160
Author: Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 12, Problem 8P
Assume a
a. Calculate the payback for investments A and B.
b. If the inflow in the fifth year for Investment A was
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A project has the following cash flows set out below. What is the profitability index of this project if the relevant discount rate is 2 percent? Enter your final answer to two decimal places.
Year
Cash flow
0
-1,745
1
537
2
2,066
3
3,912
Consider the following two mutually exclusive projects:
Year Cash Flow (A) Cash Flow (B)
0 −$350,000 −$35,000
1 25,000 17,000
2 70,000 11,000
3 70,000 17,000
4 430,000 11,000
Assume you require a 15 percent return on your investment and a payback of 4 years.
a. If you apply the discounted payback criterion, which investment will you choose?
Why?
b. If you apply the NPV criterion, which investment will you choose? Why?
c. Based on your answers in (a) and (b), what you can say anything about the IRR of
both projects? which project will you finally choose? Why?
Consider two mutually exclusive investment alternatives given in the table below.
Click the icon to view the cash flows for the projects.
(a) Determine the IRR on the incremental investment in the amount of $5,000. (Assume that MARR=4%.)
The rate of return on the incremental investment is %. (Round to two decimal places.)
Chapter 12 Solutions
Foundations of Financial Management
Ch. 12 - Prob. 1DQCh. 12 - Why does capital budgeting rely on analysis of...Ch. 12 - Prob. 3DQCh. 12 - Prob. 4DQCh. 12 - What does the term mutually exclusive investments...Ch. 12 - Prob. 6DQCh. 12 - If a corporation has projects that will earn more...Ch. 12 - What is the net present value profile? What three...Ch. 12 - How does an asset’s ADR (asset depreciation...Ch. 12 - Prob. 1P
Ch. 12 - Prob. 2PCh. 12 - Assume a firm has earnings before depreciation and...Ch. 12 - Assume a firm has earnings before depreciation and...Ch. 12 - Al Quick, the president of a New York Stock...Ch. 12 - Prob. 6PCh. 12 - Prob. 7PCh. 12 - Assume a 90,000 investment and the following cash...Ch. 12 - Prob. 9PCh. 12 - X-treme Vitamin Company is considering two...Ch. 12 - You buy a new piece of equipment for 16,230, and...Ch. 12 - Prob. 12PCh. 12 - Home Security Systems is analyzing the purchase of...Ch. 12 - Aerospace Dynamics will invest 110,000 in a...Ch. 12 - The Horizon Company will invest 60,000 in a...Ch. 12 - Skyline Corp. will invest 130,000 in a project...Ch. 12 - The Hudson Corporation makes an investment of ...Ch. 12 - The Pan American Bottling Co. is considering the...Ch. 12 - You are asked to evaluate the following two...Ch. 12 - Turner Video will invest 76,344 in a project. The...Ch. 12 - The Suboptimal Glass Company uses a process of...Ch. 12 - Keller Construction is considering two new...Ch. 12 - Davis Chili Company is considering an investment...Ch. 12 - Prob. 25PCh. 12 - Assume 65,000 is going to be invested in each of...Ch. 12 - The Summit Petroleum Corporation will purchase an...Ch. 12 - Oregon Forest Products will acquire new equipment...Ch. 12 - Prob. 29PCh. 12 - Prob. 30PCh. 12 - Prob. 31PCh. 12 - Prob. 32PCh. 12 - Prob. 33PCh. 12 - Prob. 2WECh. 12 - Returning to TXN’s summary page, record the...
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- Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a net cash inflow one year from now of 810,000. Assume the cost of capital is 10 percent. Required: 1. Break the 810,000 future cash inflow into three components: a. The return of the original investment b. The cost of capital c. The profit earned on the investment 2. Now, compute the present value of the profit earned on the investment. 3. Compute the NPV of the investment. Compare this with the present value of the profit computed in Requirement 2. What does this tell you about the meaning of NPV?arrow_forwarda)Calculate the internal rate of retum (IRR) of the following cash flow. Determine if this is a good investment for a MARR of 3% per year. b)Calculatethe extemalrate of return (ERR) of the following cash flow by assuming a MARR of 3% per year. Determine if this is a good investment. Cash Flow, $ -100,000 -10,000 -1,000 13,000 13,000 13,000 Cash Flow, $ |16,000 |16,000 16,000 16,000 16,000 16,000 Year 6 Year 1 2 3 4 5 10 11arrow_forwardConsider the following two mutually exclusive projects (W and Z). -The table- Whichever project you choose, if any, you require a 12 percent return on your investment.(a) Calculate the payback period for each project.(b) Calculate the net present value (NPV) of each project(c) Based on your answers in (a) and (b), which project will you finally choose? Explain.arrow_forward
- Please provide Answer with calculationarrow_forwardPlease Provide Correct Answerarrow_forwardCalculate the payback period, net present value, and internal rate of return for Project A. Assume a discount rate of 10%. Should the firm accept or reject Project A? Explain. If Project A and Project B are mutually exclusive, which is the better choice? Explain. What are “non-conventional” cash flows? What issues arise when evaluating projects with “non-conventional” cash flows? Project A Project B Year Cash Flow Year Cash Flow 0 -$100,000 0 -$1 1 $70,000 1 $0 2 $0 2 $0 3 $50,000 3 $10arrow_forward
- You are asked to analyze the following scenario and determine its value. What it the most you would be willing to invest in this project if your required rate of return is 11%. (Assume cash flows occur at the end of each year). Cash flows Year 1-3: $150,000,000 Year 4: ($550,000,000) Year 5-10: $175,000,000 O $845,654,114 O $491,942,778 $346,568,100 $263,458,478arrow_forwardHelp me with this questionarrow_forwardAnswer the following questions and also Draw the Cash flow diagramarrow_forward
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