Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Textbook Question
Chapter 3, Problem 10P
Your firm has identified three potential investment projects. The projects and their cash flows are shown here:
| Project | Cash Flow Today ($) | Cash Flow in One Year($) |
| A | –10 | 20 |
| B | 5 | 5 |
| C | 20 | –10 |
Suppose all cash flows are certain and the risk-free interest rate is 10%.
- a. What is the
NPV of each project? - b. If the firm can choose only one of these projects, which should it choose?
- c. If the firm can choose any two of these projects, which should it choose?
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Your firm has identified three potential investment projects. The projects and their cash flows are shown here:
Project
Cash Flow Today
Cash Flow in One Year
A
-10
20
B
5
5
C
20
-10
Suppose all cash flows are certain and the risk-free interest rate is 10%. (1) What is the NPV of each project? (2) If the firm can choose only one of these projects, which should it choose? (3) If the firm can choose any two of these projects, which should it choose?
Your firm has identified three potential investment projects. The projects and their cash flows are shown
here:
Cash Flow Today
(millions)
-$10
$5
$20
Cash Flow in One Year
Project
(millions)
$20
$5
-$10
Suppose all cash flows are certain and the risk-free interest rate is 10%.
a. What is the NPV of each project?
b. If the firm can choose only one of these projects, which should it choose based on the NPV decision
rule?
c. If the firm can choose any two of these projects, which should it choose based on the NPV decision
rule?
ABC
Data table
(Click on the following icon in order to copy its contents into a spreadsheet.)
Cash Flow Today ($ millions)
Project
A
-6
B
с
2
25
L
Cash Flow in One Year ($ millions)
22
5
- 8
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Chapter 3 Solutions
Corporate Finance
Ch. 3.1 - Prob. 1CCCh. 3.1 - If crude oil trades in a competitive market, would...Ch. 3.2 - How do you compare costs at different points in...Ch. 3.2 - Prob. 2CCCh. 3.3 - What is the NPV decision rule?Ch. 3.3 - Why doesnt the NPV decision rule depend on the...Ch. 3.4 - Prob. 1CCCh. 3.4 - Prob. 2CCCh. 3.5 - If a firm makes an investment that has a positive...Ch. 3.5 - Prob. 2CC
Ch. 3.5 - Prob. 3CCCh. 3.A - The table here shows the no-arbitrage prices of...Ch. 3.A - Suppose security Chas a payoff of 600 when the...Ch. 3.A - Prob. A.3PCh. 3.A - Prob. A.4PCh. 3.A - Prob. A.5PCh. 3.A - Consider a portfolio of two securities: one share...Ch. 3.A2 - Why does the expected return of a risky security...Ch. 3.A2 - Prob. 2CCCh. 3.A3 - Prob. 1CCCh. 3.A3 - Prob. 2CCCh. 3 - Honda Motor Company is considering offering a 2000...Ch. 3 - You are an international shrimp trader. A food...Ch. 3 - Prob. 3PCh. 3 - Prob. 4PCh. 3 - You have decided to take your daughter skiing in...Ch. 3 - Suppose the risk-free interest rate is 4%. a....Ch. 3 - You have an investment opportunity in Japan. It...Ch. 3 - Your firm has a risk-free investment opportunity...Ch. 3 - You run a construction firm. You have just won a...Ch. 3 - Your firm has identified three potential...Ch. 3 - Your computer manufacturing firm must purchase...Ch. 3 - Prob. 12PCh. 3 - Prob. 13PCh. 3 - Prob. 14PCh. 3 - Prob. 15PCh. 3 - An Exchange-Traded Fund (ETF) is a security that...Ch. 3 - Consider two securities that pay risk-free cash...Ch. 3 - Prob. 18P
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