EBK CORPORATE FINANCE
4th Edition
ISBN: 8220103164535
Author: DeMarzo
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 22.4, Problem 1CC
Why can a firm with no ongoing projects, and investment opportunities that currently have negative NPVs, still be worth a positive amount?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Why do most academics and financial executives regard the NPV as being the single best criterion and better than the IRR? Why do companies still calculate IRRs?
Which statements are INCORRECT?
Check all that apply:
when IRR is positive, the project is acceptable
when profitability index is positive, the project is acceptable
a decrease in a firm's WACC will increase the attractiveness of the firm's
investment options
when required return is less than internal rate of return, the project is
acceptable
Many companies still go ahead to undertake capital projects even when these projects have a negative NPV. Why do you think this is so?
Chapter 22 Solutions
EBK CORPORATE FINANCE
Ch. 22.1 - What is the difference between a real option and a...Ch. 22.1 - Why does a real option add value to an investment...Ch. 22.2 - Prob. 1CCCh. 22.2 - In what circumstances does the real option add...Ch. 22.2 - How do you use a decision tree to make the best...Ch. 22.3 - What is the economic trade-off between investing...Ch. 22.3 - Prob. 2CCCh. 22.3 - Does an option to invest have the same beta as the...Ch. 22.4 - Why can a firm with no ongoing projects, and...Ch. 22.4 - Why is it sometimes optimal to invest in stages?
Ch. 22.4 - How can an abandonment option add value to a...Ch. 22.5 - Prob. 1CCCh. 22.5 - Prob. 2CCCh. 22.6 - Why can staging investment decisions add value?Ch. 22.6 - How can you decide the order of investment in a...Ch. 22.7 - Prob. 1CCCh. 22.7 - Prob. 2CCCh. 22 - Your company is planning on opening an office in...Ch. 22 - You are trying to decide whether to make an...Ch. 22 - Prob. 4PCh. 22 - Prob. 5PCh. 22 - You are a financial analyst at Global Conglomerate...Ch. 22 - Prob. 7PCh. 22 - Prob. 8PCh. 22 - Consider again the electric car dealership in...Ch. 22 - Prob. 12PCh. 22 - Prob. 13PCh. 22 - You are an analyst working for Goldman Sachs, and...Ch. 22 - You own a small networking startup. You have just...Ch. 22 - An original silver dollar from the late eighteenth...Ch. 22 - What implicit assumption is made when managers use...Ch. 22 - Prob. 22PCh. 22 - Genenco is developing a new drug that will slow...Ch. 22 - Prob. 24PCh. 22 - Your firm is thinking of expanding. If you invest...Ch. 22 - Prob. 26PCh. 22 - Assume that the project in Example 22.5 pays an...
Additional Business Textbook Solutions
Find more solutions based on key concepts
Describe and evaluate what Pfizer is doing with its PfizerWorks.
Management (14th Edition)
The flowchart for the process at the local car wash. Introduction: Flowchart: A flowchart is a visualrepresenta...
Principles of Operations Management: Sustainability and Supply Chain Management (10th Edition)
Horizontal analysis(Learning Objective 2)15-20 min. What were the dollar and percentage changes in Fesslers Fin...
Financial Accounting, Student Value Edition (5th Edition)
11-13. Discuss how your team is going to identify the existing competitors in your chosen market. Based on the ...
Business Essentials (12th Edition) (What's New in Intro to Business)
BE4-15 The required steps in the accounting cycle are listed in random order below. List the steps in proper se...
Financial Accounting: Tools for Business Decision Making, 8th Edition
E8-16 Understanding internal control, components, procedures, and laws
Learning Objectives 1, 2, 3
Match ...
Horngren's Accounting (12th Edition)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- True / False and explain (if the statement is false, explain why it is incorrect) 1. Simulation analysts uses best- and worst case scenarios to determine the most likely outcome 2. In the absence of capital rationing, the firm should take all projects with a positive net present value.arrow_forwardWhich of the following is an example of a way in which companies can create value by exploiting real options? A.Exercising in-the-money real options immediately B.Optimally delaying or abadoning projects C.Abandoning good projects in favor of newer projects D.Acting quickly to take on the new projects even if there is no cost to waitarrow_forwardWhy would a company choose to factor itsreceivables, given that it will get less money than thereceivables are worth?arrow_forward
- Why is an investment more attractive to management if it has a shorter payback period?arrow_forwardIs it good for the firm if its manager only prefers projects that minimize overall riskarrow_forwardWhich of the following statements is true? Group of answer choices a. Undertaking a negative NPV project may increase the value of a firmʹs equity while decreasing overall firm value b. In order to maximize firm value, management should commit to take on no projects that could decrease the value of the existing debt c. In order to maximize firm value, management should undertake all projects that will maximize the value of its equity d. Undertaking a positive NPV project will always increase the values of both the firmʹs debt and its equityarrow_forward
- Profitable projects are difficult to find. a. Efficient capital markets b. The curse of competitive markets c. Risk-return trade-off d. All risks are not equalarrow_forwardWhat is the fundamental flaw in utilizing income from operations as a success metric for investment centers?arrow_forwardWhich of the following limits the market from becoming a fully efficient market? New information takes time to process. Obtaining new information is costly. The existence of closed end investment companies. Both a. and b. are correct. All of the above answers are correct. None of the above answers is correct.arrow_forward
- Please provide step by step explaination as I keep getting this question wrongarrow_forwardAssume we are a world that is not frictionless. Indeed, the real world is such a place. In this world, a firm may have difficulty raising funds to fund a positive NPV project because too much of the project's payoff would go to investors other than the investors from whom you are trying to raise the new money. Group of answer choices True Falsearrow_forwardSuppose profits earned by one firm are independent of profits earned by other firms. When managers and shareholders diversify, then O poor outcomes of some projects are worsened by favorable outcomes of other projects. O both managers and shareholders are considered risk loving. O both managers and shareholders are considered risk averse. O poor outcomes of some projects can be offset by favorable outcomes of other projects.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Working capital explained; Author: The Finance Storyteller;https://www.youtube.com/watch?v=XvHAlui-Bno;License: Standard Youtube License