CORPORATE FINANCE - CONNECT ACCESS
CORPORATE FINANCE - CONNECT ACCESS
12th Edition
ISBN: 9781264054893
Author: Ross
Publisher: MCG
Question
Book Icon
Chapter 5, Problem 10QAP

a.

Summary Introduction

Adequate information:

    YearCash Flows
    0$8,700
    1-$3,900
    2-$2,900
    3-$2,300
    4-$1,800

To compute: The internal rate of return (IRR) of the offer.

Introduction: Internal rate of return (IRR) is defined as the discount rate at which the aggregate present value of net cash inflows is equal to the aggregate present value of net cash outflows of the project.

b.

Summary Introduction

Adequate information:

    YearCash Flows
    0$8,700
    1-$3,900
    2-$2,900
    3-$2,300
    4-$1,800

Appropriate discount rate = 10%

To determine: Whether the offer should be accepted if the appropriate discount rate is 10%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

c.

Summary Introduction

Adequate information:

    YearCash Flows
    0$8,700
    1-$3,900
    2-$2,900
    3-$2,300
    4-$1,800

Appropriate discount rate = 20%

To compute: Whether the offer should be accepted if the appropriate discount rate is 20%.

Introduction: Internal rate of return refers to the discount rate at which the net present value of the project is zero.

d.

Summary Introduction

Adequate information:

    YearCash Flows
    0$8,700
    1-$3,900
    2-$2,900
    3-$2,300
    4-$1,800

To compute:

  • The net present value (NPV) of the offer if the appropriate discount rate is 10%.
  • The net present value (NPV) of the offer if the appropriate discount rate is 20%.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

e.

Summary Introduction

Adequate information:

    YearCash Flows
    0$8,700
    1-$3,900
    2-$2,900
    3-$2,300
    4-$1,800

To explain: Whether the decisions under the NPV rule are consistent with those of the IRR rule.

Introduction:

The Internal Rate of Return (IRR) is the discount rate that will equate the present value of the cash inflows to the present value of the cash outflows.

The Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows of a proposal.

Blurred answer
Students have asked these similar questions
43 -ACC-121-71: CH 04 HW-X Question 7 - CH 04 HW - Exercise X ezto.mheducation.com/ext/map/index.html?_con=con&external_browser=0&launchUrl=https%253A%252F%252Fconnect.mheducation.com%252Fcon vo Support L Lenovo McAfee Dashboard | Piedm... Information System... My Shelf | Brytewav... My Shelf | Bryteway... Exercises & Problems Saved Help Sa Scribners Corporation produces fine papers in three production departments-Pulping, Drying, and Finishing. In the Pulping Department, raw materials such as wood fiber and rag cotton are mechanically and chemically treated to separate their fibers. The result is a thick slurry of fibers. In the Drying Department, the wet fibers transferred from the Pulping Department are laid down on porous webs, pressed to remove excess liquid, and dried in ovens. In the Finishing Department, the dried paper is coated, cut, and spooled onto reels. The company uses the weighted-average method in its process costing system. Data for March for the Drying Department…
With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a "surf lifestyle for the home." With limited capital, they decided to focus on surf print table and floor lamps to accent people's homes. They projected unit sales of these lamps to be 7,600 in the first year, with growth of 5 percent each year for the next five years. Production of these lamps will require $41,000 in net working capital to start. The net working capital will be recovered at the end of the project. Total fixed costs are $101,000 per year, variable production costs are $25 per unit, and the units are priced at $52 each. The equipment needed to begin production will cost $181,000. The equipment will be depreciated using the straight-line method over a five-year life and is not expected to have a salvage value. The effective tax rate is 21 percent and the required rate of return is 23 percent. What is the NPV of this project? Note:…
Forest Enterprises, Incorporated, has been considering the purchase of a new manufacturing facility for $290,000. The facility is to be fully depreciated on a straight-line basis over seven years. It is expected to have no resale value after the seven years. Operating revenues from the facility are expected to be $125,000, in nominal terms, at the end of the first year. The revenues are expected to increase at the inflation rate of 2 percent. Production costs at the end of the first year will be $50,000, in nominal terms, and they are expected to increase at 3 percent per year. The real discount rate is 5 percent. The corporate tax rate is 25 percent. Calculate the NPV of the project. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. NPV

Chapter 5 Solutions

CORPORATE FINANCE - CONNECT ACCESS

Knowledge Booster
Background pattern image
Recommended textbooks for you
Text book image
Essentials of Business Analytics (MindTap Course ...
Statistics
ISBN:9781305627734
Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:Cengage Learning
Text book image
Entrepreneurial Finance
Finance
ISBN:9781337635653
Author:Leach
Publisher:Cengage
Text book image
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Text book image
Financial Management: Theory & Practice
Finance
ISBN:9781337909730
Author:Brigham
Publisher:Cengage