Whether IRR can be used to rank projects without having to mention a discount rate.

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Answer 1

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Chapter 5, Problem 3PS

a)

Summary Introduction

To discuss: Whether IRR can be used to rank projects without having to mention a discount rate.

b)

Summary Introduction

To discuss: That in case of the payback period method as long as the minimum payback period is short, the rule makes sure that the company takes no borderline projects and it reduces risk.

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You've collected the following information from your favorite financial website. 52-Week Price Dividend Hi 77.40 Lo Stock (Dividend) Yield % PE Ratio Close Price Net Change 10.43 Acevedo .36 2.6 6 13.90 -.24 55.81 33.42 Georgette, Incorporated 1.54 3.8 10 40.43 -.01 131.04 70.05 YBM 2.55 2.9 10 89.08 3.07 50.24 35.00 13.95 Manta Energy .80 5.2 6 20.74 Winter Sports .32 1.5 28 15.43 ?? -.26 .18 According to analysts, the growth rate in dividends for YBM for the next five years is expected to be 21 percent. Suppose YBM meets this growth rate in dividends for the next five years and then the dividend growth rate falls to 5.75 percent, indefinitely. Assume investors require a return of 14 percent on YBM stock. According to the dividend growth model, what should the stock price be today? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

1. Waterfront Inc. wishes to borrow on a short-term basis without reducing its current ratio below 1.25. At present its current assets and current liabilities are $1,600 and $1,000 respectively. How much can Waterfront Inc. borrow?

Question 3Footfall Manufacturing Ltd. reports the following financialinformation at the end of the current year:Net Sales $100,000Debtor’s turnover ratio (based onnet sales)2Inventory turnover ratio 1.25Fixed assets turnover ratio 0.8Debt to assets ratio 0.6Net profit margin 5%Gross profit margin 25%Return on investment 2%Use the given information to fill out the templates for incomestatement and balance sheet given below:Income Statement of Footfall Manufacturing Ltd. for the year endingDecember 31, 20XX(in $)Sales 100,000Cost of goodssoldGross profitOther expensesEarnings beforetaxTax @50%Earnings aftertaxBalance Sheet of Footfall Manufacturing Ltd. as at December 31, 20XX(in $)Liabilities Amount Assets AmountEquity Net fixed assetsLong termdebt50,000 InventoryShort termdebtDebtorsCashTOTAL TOTAL

Answer 2

Question

Chapter 5, Problem 3PS

a)

Summary Introduction

To discuss: Whether IRR can be used to rank projects without having to mention a discount rate.

b)

Summary Introduction

To discuss: That in case of the payback period method as long as the minimum payback period is short, the rule makes sure that the company takes no borderline projects and it reduces risk.

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Answer 3

Question

Chapter 5, Problem 3PS

a)

Summary Introduction

To discuss: Whether IRR can be used to rank projects without having to mention a discount rate.

b)

Summary Introduction

To discuss: That in case of the payback period method as long as the minimum payback period is short, the rule makes sure that the company takes no borderline projects and it reduces risk.

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Answer 4

Question

Chapter 5, Problem 3PS

a)

Summary Introduction

To discuss: Whether IRR can be used to rank projects without having to mention a discount rate.

b)

Summary Introduction

To discuss: That in case of the payback period method as long as the minimum payback period is short, the rule makes sure that the company takes no borderline projects and it reduces risk.

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Answer 5

Chapter 5, Problem 3PS

a)

Summary Introduction

To discuss: Whether IRR can be used to rank projects without having to mention a discount rate.

b)

Summary Introduction

To discuss: That in case of the payback period method as long as the minimum payback period is short, the rule makes sure that the company takes no borderline projects and it reduces risk.

Answer 6

Chapter 5, Problem 3PS

a)

Summary Introduction

To discuss: Whether IRR can be used to rank projects without having to mention a discount rate.

Answer 7

Chapter 5, Problem 3PS

a)

Summary Introduction

To discuss: Whether IRR can be used to rank projects without having to mention a discount rate.

Answer 8

b)

Summary Introduction

To discuss: That in case of the payback period method as long as the minimum payback period is short, the rule makes sure that the company takes no borderline projects and it reduces risk.

Answer 9

b)

Summary Introduction

To discuss: That in case of the payback period method as long as the minimum payback period is short, the rule makes sure that the company takes no borderline projects and it reduces risk.

Answer 10

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Answer 11

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Answer 12

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Answer 13

Ch. 5 - (IRR) Check the IRRs for project F in Section 5-3.Ch. 5 - (IRR) What is the IRR of a project with the...Ch. 5 - (XIRR) What is the IRR of a project with the...Ch. 5 - Payback a. What is the payback period on each of...Ch. 5 - Payback Consider the following projects: a. If the...Ch. 5 - Prob. 3PS Ch. 5 - IRR Write down the equation defining a projects...Ch. 5 - Prob. 5PS Ch. 5 - IRR Calculate the IRR (or IRRs) for the following...Ch. 5 - IRR rule You have the chance to participate in a...

Whether IRR can be used to rank projects without having to mention a discount rate.

Solution Summary: The author explains that IRR is a modern or discounted capital budgeting technique in which the company should compare the internal rate of return (IRR) with the opportunity cost of capital.

To discuss: Whether IRR can be used to rank projects without having to mention a discount rate.

To discuss: That in case of the payback period method as long as the minimum payback period is short, the rule makes sure that the company takes no borderline projects and it reduces risk.

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Chapter 5 Solutions