PRIN.OF CORPORATE FINANCE
PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 5, Problem 11PS

IRR rule Mr. Cyrus Clops, the president of Giant Enterprises, has to make a choice between two possible investments:

Chapter 5, Problem 11PS, IRR rule Mr. Cyrus Clops, the president of Giant Enterprises, has to make a choice between two

The opportunity cost of capital is 9%. Mr. Clops is tempted to take B, which has the higher IRR.

  1. a. Explain to Mr. Clops why this is not the correct procedure.
  2. b. Show him how to adapt the IRR rule to choose the best project.
  3. c. Show him that this project also has the higher NPV.
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3-9. (Working with a statement of cash flows) Given the following information, prepare LO3 a statement of cash flows. Increase in accounts receivable Increase in inventories Operating income Interest expense Increase in accounts payable Dividends $25 30 75 25 25 15 20 Increase in net fixed assets 23 Depreciation expense Income taxes 12 17 Beginning cash 20 Increase in common stock
3-4. (Preparing a balance sheet) Prepare a balance sheet from the following informa- LO2 tion. What is the net working capital and debt ratio? Cash $50,000 Account receivables 42,700 Accounts payable 23,000 Short-term notes payable 10,500 Inventories 40,000 Gross fixed assets 1,280,000 Other current assets 5,000 Long-term debt 200,000 Common stock 490,000 Other assets 15,000 Accumulated depreciation 312,000 Retained earnings ? MyLab
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