PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 6, Problem 27PS
Mutually exclusive investments and project lives Look again at your calculations for Problem 26. Suppose that technological change is expected to reduce costs by 10% per year. There will be new machines in year 1 that cost 10% less to buy and operate than A and B. In year 2, there will be a second crop of new machines incorporating a further 10% reduction, and so on. How does this change the equivalent annual costs of machines A and B?
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Advanced Modular Technology (AMT) makes energy cleaner, safer, more secure, and more efficient. It typically exhibits net annual revenues that increase over a fairly long period. In the long run, an AMT project may be profitable as measured by IRR, but its simple payback period may be unacceptable. Evaluate this AMT project using the IRR method when thecompany MARR is 15% per year and its maximum allowable payback period is three years. What is your recommendation?
Advanced Modular Technology (AMT) makes energy cleaner, safer, more secure and more efficient. It
typically exhibits net annual revenues that increase over a fairly long period. In the long run, an AMT
project may be profitable as measured by IRR, but its simple payback period may be unacceptable
Evaluate this AMT project using the IRR method when the company MARR is 26% per year and its
maximum alowable payback period is three years. What is your recommendation?
Capital investment at time 0
Net revenues in year k
$99.000
$21.000 +
Market (salvage) value
Life
$0,000 - (-1)
$9,000
7 years
The internal rate of return is%. (Round to one decimal place.)
Just because a project’s payback period is relatively long doesn’t mean it is not profitable in the long run. Consider an investment in LED lights with a price tag of $239,000. The estimated annual savings in electricity and routine maintenance is $40,300 and the life of the LED lights is 20 years. Solve, a. What is the simple payback period for the lights? b. What is the IRR of this investment? c. What do you conclude from Part (a) and Part (b)?
Chapter 6 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 6 - Cash flows Which of the following should be...Ch. 6 - Cash flows Reliable Electric, a major Ruritanian...Ch. 6 - Prob. 3PSCh. 6 - Prob. 4PSCh. 6 - Real and nominal flows Mr. Art Deco will be paid...Ch. 6 - Real and nominal flows Restate the net cash flows...Ch. 6 - Real and nominal flows Guandong Machinery is...Ch. 6 - Working capital Each of the following statements...Ch. 6 - Prob. 9PSCh. 6 - Project NPV Better Mousetraps research...
Ch. 6 - Project NPV A widget manufacturer currently...Ch. 6 - Project NPV Marsha Jones has bought a used...Ch. 6 - Project NPV United Pigpen is considering a...Ch. 6 - Project NPV Imperial Motors is considering...Ch. 6 - Project NPV and IRR A project requires an initial...Ch. 6 - Taxes and project NPV In the International Mulch...Ch. 6 - Depreciation and project NPV Suppose that Sudbury...Ch. 6 - Depreciation and project NPV Ms. T. Potts, the...Ch. 6 - Prob. 20PSCh. 6 - Prob. 21PSCh. 6 - Prob. 22PSCh. 6 - Equivalent annual cash flow Look at Problem 22...Ch. 6 - Equivalent annual cash flow Deutsche Transport can...Ch. 6 - Prob. 25PSCh. 6 - Mutually exclusive investments and project lives...Ch. 6 - Mutually exclusive investments and project lives...Ch. 6 - Mutually exclusive investments and project lives....Ch. 6 - Mutually exclusive investments and project lives...Ch. 6 - Mutually exclusive investments and project lives...Ch. 6 - Replacement decisions Machine C was purchased five...Ch. 6 - Replacement decisions Hayden Inc. has a number of...Ch. 6 - Replacement decisions. You are operating an old...Ch. 6 - Replacement decisions. A forklift will last for...Ch. 6 - The cost of excess capacity The presidents...Ch. 6 - Effective tax rates One measure of the effective...Ch. 6 - Equivalent annual costs We warned that equivalent...
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- Just because a project's payback period is relatively long doesn't mean it is not profitable in the long run. Consider an investment in LED lights with a price tag of $242,000. The estimated annual savings in electricity and routine maintenance is $39,300 and the life of the LED lights is 22 years. Assume that the payback period of three years or less is desired by the investor. a. What is the simple payback period for the lights? b. What is the IRR of this investment? c. What do you conclude from Part (a) and Part (b)? a. The simple payback period is b. The IRR of the investment is c. Select all that apply. years. (Round to one decimal place.) %. (Round to one decimal place.) A. The IRR will signal an acceptable (profitable) project if the MARR is less than the IRR. B. The value of indicates a poor project in terms of liquidity. C. The value of indicates the best project in terms of liquidity. D. The IRR will signal an acceptable (profitable) project if the MARR is higher than the…arrow_forwardJust because a project's payback period is relatively long doesn't mean it is not profitable in the long run. Consider an investment in LED lights with a price tag of $236,000. The estimated annual savings in electricity and routine maintenance is $39,500 and the life of the LED lights is 18 years. Assume that the payback period of three years or less is desired by the investor. a. What is the simple payback period for the lights? b. What is the IRR of this investment? c. What do you conclude from Part (a) and Part (b)? a. The simple payback period is years. (Round to one decimal place.)arrow_forward1. Calculate the net present value for each project. 2. Calculate the simple rate of return for each product.3. Which of the two projects (if either) would you recommend that Batelco Inc. accept? Why?arrow_forward
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