Corporate Finance
Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Chapter 17.4, Problem 1CC
Summary Introduction

To discuss: The condition where the shareholders prefer shares repurchase rather than dividends.

Introduction:

Share repurchase is an alternative method to pay the cash to the company’s investors through a way of buy back of shares or shares repurchase and distribution of portion of earnings by the company to its shareholders is termed as dividends.

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Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2,350,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $3,310,000 in annual sales, with costs of $2,330,000. Assume the tax rate is 23 percent and the required return on the project is 11 percent. What is the project's NPV? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
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