PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 2, Problem 2SQ
Summary Introduction
To determine: The value of the building.
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You are considering opening a new plant. The plant will cost $100.7 million upfront and will take one year to build.
After that, it is expected to produce profits of $28.6 million at the end of every year of production. The cash flows are
expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 6.3%. Should you
make the investment? Calculate the IRR. Does the IRR rule agree with the NPV rule?
Here is the cash flow timeline for this problem:
Years
0
2
+
28.6
3
28.6
4
+
28.6
Cash Flow ($ million) - 100.7
Calculate the NPV of this investment opportunity if your cost of capital is 6.3%.
The NPV of this investment opportunity is $ million. (Round to two decimal places.)
Forever
28.6
You are considering opening a new plant. The plant will
cost $101.4 million upfront and will take one year to
build. After that, it is expected to produce profits of $
29.6 million at the end of every year of production. The
cash flows are expected to last forever. Calculate the
NPV of this investment opportunity if your cost of
capital is 7.2 % . Should you make the investment?
Calculate the IRR. Does the IRR rule agree with the NPV
rule?
You are considering opening a new plant. The plant will cost $98.2 million upfront. After that, it is expected to produce profits of $30.2 million at the end of every
year. The cash flows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 6.6%. Should you make
the investment? Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged.
Calculate the NPV of this investment opportunity if your cost of capital is 6.6%.
The NPV of this investment opportunity is $ million. (Round to one decimal place.)
Chapter 2 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 2 - (FV) In 1880, five aboriginal trackers were each...Ch. 2 - Prob. 2SQCh. 2 - (PV) Your company can lease a truck for 10,000 a...Ch. 2 - (RATE) Ford Motor stock was one of the victims of...Ch. 2 - Prob. 5SQCh. 2 - Prob. 6SQCh. 2 - Prob. 7SQCh. 2 - (NOMINAL) What monthly compounded interest rate...Ch. 2 - Opportunity cost of capital Which of the following...Ch. 2 - Opportunity cost of capital Explain why we refer...
Ch. 2 - Prob. 3PSCh. 2 - Compound interest New Savings Bank pays 4%...Ch. 2 - Compound interest In 2017, Leonardo da Vincis...Ch. 2 - Future values If you invest 100 at an interest...Ch. 2 - Prob. 7PSCh. 2 - Future values In the five years preceding the end...Ch. 2 - Discount factors a. If the present value of 139 is...Ch. 2 - Prob. 10PSCh. 2 - Prob. 11PSCh. 2 - Present values What is the PV of 100 received in:...Ch. 2 - Prob. 13PSCh. 2 - Present values A factory costs 800,000. You reckon...Ch. 2 - Present values Recalculate the NPV of the office...Ch. 2 - Present values and opportunity cost of capital...Ch. 2 - Perpetuities An investment costs 1,548 and pays...Ch. 2 - Perpetuities You have just read an advertisement...Ch. 2 - Growing perpetuities A common stock will pay a...Ch. 2 - Prob. 20PSCh. 2 - Prob. 21PSCh. 2 - Annuities Kangaroo Autos is offering free credit...Ch. 2 - Annuities David and Helen Zhang are saving to buy...Ch. 2 - Prob. 24PSCh. 2 - Annuities Several years ago, The Wall Street...Ch. 2 - Prob. 26PSCh. 2 - Prob. 27PSCh. 2 - Prob. 28PSCh. 2 - Prob. 29PSCh. 2 - Annuities due A store offers two payment plans....Ch. 2 - Amortizing loans A bank loan requires you to pay...Ch. 2 - Amortizing loans Suppose that you take out a...Ch. 2 - Future values and annuities a. The cost of a new...Ch. 2 - Prob. 34PSCh. 2 - Growing annuities You are contemplating membership...Ch. 2 - Prob. 36PSCh. 2 - Growing perpetuities and annuities Your firms...Ch. 2 - Compounding intervals A leasing contract calls for...Ch. 2 - Compounding intervals Which would you prefer? a....Ch. 2 - Compounding intervals You are quoted an interest...Ch. 2 - Prob. 41PSCh. 2 - Continuous compounding How much will you have at...Ch. 2 - Continuous compounding The continuously compounded...Ch. 2 - Prob. 44PSCh. 2 - Annuities Use Excel to construct your own set of...Ch. 2 - Declining perpetuities and annuities You own an...
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