13th Edition

ISBN: 9781260465099

Author: BREALEY, Richard

Publisher: MCGRAW-HILL HIGHER EDUCATION

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A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budge…

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Textbook Question

Chapter 2, Problem 46PS

Declining perpetuities and annuities You own an oil pipeline that will generate a $2 million cash return over the coming year. The pipeline’s operating costs are negligible, and it is expected to last for a very long time. Unfortunately, the volume of oil shipped is declining, and cash flows are expected to decline by 4% per year. The discount rate is 10%.

a. What is the PV of the pipeline’s cash flows if its cash flows are assumed to last forever?
b. What is the PV of the cash flows if the pipeline is scrapped after 20 years?

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Chapter 2, Problem 45PS

Chapter 3, Problem 1SQ

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Chapter 2 Solutions

Principles of Corporate Finance

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Solution Summary: The author determines the present value of pipeline’s cash flow if scrapped in 20 years.

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