Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
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Textbook Question
Chapter 15, Problem 10P
The Delta Chemical Corporation is expected to have the capital structure for the foreseeable future as given in Table P15.10.
The flotation costs are already included in each cost component. The marginal income tax rate (tm) for Delta is expected to remain at 40% in the future.
- (a) Determine the cost of capital (k).
- (b) If the risk-free rate is known to be 6% and the average return on the S&P 500 is about 12%, determine the
cost of equity with β = 1.2 based on the capital-asset pricing principle. - (c) Determine the cost of capital on the basis of the cost of equity obtained in part (b).
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Consider the cashflow (n = 10 years, MARR = e = 14%)
Cash Flow A
Investment
P 180,000
Revenues
P 350,000 per year
Expenses
P 400,000 per year
for the first 3 years,
decreasing by P
50,000 per year
thereafter
a. Determine the Annual Worth (AW) of each project.
b. Determine the Internal Rate of Return (IRR) of each project.
c. Determine the External Rate of Return (ERR) of each project.
Salvage
Value
P 40,000
Consider the following investment opportunity:
Capital Investment (End of Year 0)
Expenses (per year)
Revenues (geometric series)
$450,000
$25,000
$60,000 in the first year,
increasing 5% per year
following
Market value (End of Year 20)
Study Period (years)
MARR (per year)
$90,000
20 years
10%
10% Interest Table
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Contemporary Engineering Economics (6th Edition)
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