Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
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Chapter 5, Problem 26P
To determine
Calculate the minimum
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XYZ Gadget Company is currently considering which investment projects it should undertake. The following list of projects along with the
estimated rate of return of each project is presented to the executive management team:
Project A (8.5%)
Project B (7%)
Project C (6%)
Project D (11%)
Project E (5.5%)
The current interest rate in the loanable funds market is 5%. However, if an increase in government borrowing pushes the interest rate to
7.5%, we would expect the company to discontinue investment plans for all but,
of its planned projects.
The board of directors of the Estelar Company in Brazil was presented with the following list of investment projects for
implementation in 2016:
Total Cost (Brazilian Reais Converted to
Millions of
U.S. Dollars)
Estimated Rate of Return
Project
Factory in Buenos Aires, Argentina
Factory in Caracas, Venezuela
A new headquarters in Rio de Janeiro
New logistics software
A new distribution warehouse
A new fleet of delivery trucks
Using the graph on the right, sketch total investment as a function of the interest rate (with the interest rate on the y-axis).
1.) Using the line drawing tool, graph the investment function. The investment function will be comprised of six line segments
(D₁, D₂, D3, D4, D5, and De). Draw each of the line segments, labeling each with the provided labels.
$20
19
4
6
5
4
11%
14
10
17
20
9
Note: Carefully follow the instructions above and only draw the required objects.
You would recommend that Estelar should invest $____ million. (Enter your response as an…
The internal rate of return (IRR) refers to the compound annual rate of return that a project
generates based on its up-front cost and subsequent cash flows. Consider this case:
Blue Llama Mining Company is evaluating a proposed capital budgeting project (project
Delta) that will require an initial investment of $1,500,000.
Blue Llama Mining Company has been basing capital budgeting decisions on a project's
NPV; however, its new CFO wants to start using the IRR method for capital budgeting
decisions. The CFO says that the IRR is a better method because percentages and returns
are easier to understand and to compare to required returns. Blue Llama Mining Company's
WACC is 9%, and project Delta has the same risk as the firm's average project.
The project is expected to generate the following net cash flows:
Year Cash Flow
Year 1 $325,000
Year 2 $450,000
Year 3 $400,000
Year 4 $475,000
Chapter 5 Solutions
Contemporary Engineering Economics (6th Edition)
Ch. 5 - Prob. 1PCh. 5 - Prob. 2PCh. 5 - If a project costs 100,000 and is expected to...Ch. 5 - Refer to Problem 5.2, and answer the following...Ch. 5 - Prob. 5PCh. 5 - Prob. 6PCh. 5 - Prob. 7PCh. 5 - Prob. 8PCh. 5 - Consider the cash flows from an investment...Ch. 5 - Prob. 10P
Ch. 5 - Prob. 11PCh. 5 - Prob. 12PCh. 5 - Prob. 13PCh. 5 - Prob. 14PCh. 5 - Prob. 15PCh. 5 - Prob. 16PCh. 5 - Prob. 17PCh. 5 - Prob. 18PCh. 5 - Consider the project balances in Table P5.19 for a...Ch. 5 - Your RD group has developed and tested a computer...Ch. 5 - Prob. 21PCh. 5 - Prob. 22PCh. 5 - Prob. 23PCh. 5 - Prob. 24PCh. 5 - Prob. 25PCh. 5 - Prob. 26PCh. 5 - Prob. 27PCh. 5 - Prob. 28PCh. 5 - Prob. 29PCh. 5 - Prob. 30PCh. 5 - Prob. 31PCh. 5 - Prob. 32PCh. 5 - Geo-Star Manufacturing Company is considering a...Ch. 5 - Prob. 34PCh. 5 - Prob. 35PCh. 5 - Prob. 36PCh. 5 - Prob. 37PCh. 5 - Prob. 38PCh. 5 - Prob. 39PCh. 5 - Prob. 40PCh. 5 - Prob. 41PCh. 5 - Prob. 42PCh. 5 - Two methods of carrying away surface runoff water...Ch. 5 - Prob. 44PCh. 5 - Prob. 45PCh. 5 - Prob. 46PCh. 5 - Prob. 47PCh. 5 - Prob. 48PCh. 5 - Prob. 49PCh. 5 - Prob. 50PCh. 5 - Prob. 51PCh. 5 - Prob. 52PCh. 5 - Prob. 53PCh. 5 - Prob. 54PCh. 5 - Prob. 55PCh. 5 - Prob. 56PCh. 5 - Prob. 57PCh. 5 - Prob. 58PCh. 5 - Prob. 59PCh. 5 - Prob. 1STCh. 5 - Prob. 2ST
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