Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
11th Edition
ISBN: 9780077861759
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 7, Problem 11QP

a)

Summary Introduction

To determine: Internal rate of return, payback period, net present value at the point of accounting break-even level of output.

Introduction:

Accounting break-even point refers to a point where the company faces zero profits.

b)

Summary Introduction

To determine: Internal rate of return, payback period, net present value at the point of cash break-even level of output.

Introduction:

Cash break-even point occurs when minimum revenue from sales is required to fetch the business with positive cash flows.

c)

Summary Introduction

To determine: Internal rate of return, payback period, net present value at the point of financial break-even level of output.

Introduction:

Financial break-even point refers to the point of earnings before interest and taxes (EBIT), which is equal to the fixed financial cost inclusive of preference dividend and interest.

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Assume an investor deposits $116,000 in a professionally managed account. One year later, the account has grown in value to $136,000 and the investor withdraws $43,000. At the end of the second year, the account value is $107,000. No other additions or withdrawals were made. During the same two years, the risk-free rate remained constant at 3.94 percent and a relevant benchmark earned 9.58 percent the first year and 6.00 percent the second. Calculate geometric average of holding period returns over two years. (You need to calculate IRR of cash flows over two years.) Round the answer to two decimals in percentage form.
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Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)

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