EBK CORPORATE FINANCE
4th Edition
ISBN: 8220103164535
Author: DeMarzo
Publisher: PEARSON
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Chapter 7, Problem 13P
Summary Introduction
To determine: The advice of NPV and IRR rule regarding the investment opportunity.
Introduction:
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Professor Wendy Smith has been offered the following deal: A law firm would like to retain her for an upfront payment of
$50,000. In return, for the next year, the firm would have access to 8 hours of her time every month. Smith's rate is
$550 per hour, and her opportunity cost of capital is 15% (equivalent annual rate, EAR). What is the IRR (annual)? What
does the IRR rule advise regarding this opportunity? What is the NPV? What does the NPV rule say about
this opportunity?
The IRR (annual) is %. (Round to two decimal places.)
K
Professor Wendy Smith has been offered the following opportunity: A law firm would like to retain her for an upfront
payment of $50,000. In return, for the next year the firm would have access to eight hours of her time every month. As an
alternative payment arrangement, the firm would pay Professor Smith's hourly rate for the eight hours each
month. Smith's rate is $555 per hour and her opportunity cost of capital is 15% per year. What does the IRR rule advise
regarding the payment arrangement? (Hint: Find the monthly rate that will yield an effective annual rate of 15%.) What
about the NPV rule?
The annual IRR is%. (Round to two decimal places.)
The NPV is? Round to nearest dollar
Chapter 7 Solutions
EBK CORPORATE FINANCE
Ch. 7.1 - Explain the NPV rule for stand-alone projects.Ch. 7.1 - What does the difference between the cost of...Ch. 7.2 - Prob. 1CCCh. 7.2 - If the IRR rule and the NPV rule lead to different...Ch. 7.3 - Can the payback rule reject projects that have...Ch. 7.3 - Prob. 2CCCh. 7.4 - For mutually exclusive projects, explain why...Ch. 7.4 - What is the incremental RR and what are its...Ch. 7.5 - Prob. 1CCCh. 7.5 - Prob. 2CC
Ch. 7 - Your brother wants to borrow 10,000 from you. He...Ch. 7 - You are considering investing in a start-up...Ch. 7 - You are considering opening a new plant. The plant...Ch. 7 - Your firm is considering the launch of a new...Ch. 7 - Bill Clinton reportedly was paid 15 million to...Ch. 7 - FastTrack Bikes, Inc. is thinking of developing a...Ch. 7 - OpenSeas, Inc. is evaluating the purchase of a new...Ch. 7 - You are CEO of Rivet Networks, maker of ultra-high...Ch. 7 - You are considering an investment in a clothes...Ch. 7 - You have been offered a very long term investment...Ch. 7 - You are considering opening a new plant. The plant...Ch. 7 - Bill Clinton reportedly was paid 15 million to...Ch. 7 - Prob. 13PCh. 7 - Innovation Company is thinking about marketing a...Ch. 7 - You have 3 projects with the following cash flows:...Ch. 7 - You own a coal mining company and are considering...Ch. 7 - Prob. 17PCh. 7 - Prob. 18PCh. 7 - Prob. 19PCh. 7 - Prob. 20PCh. 7 - You are a real estate agent thinking of placing a...Ch. 7 - Prob. 22PCh. 7 - You are deciding between two mutually exclusive...Ch. 7 - You have just started your summer Internship, and...Ch. 7 - Prob. 25PCh. 7 - Prob. 26PCh. 7 - Prob. 27PCh. 7 - Prob. 28PCh. 7 - Prob. 29PCh. 7 - Prob. 30PCh. 7 - Prob. 31PCh. 7 - Prob. 32PCh. 7 - Prob. 33PCh. 7 - Orchid Biotech Company is evaluating several...
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