Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Textbook Question
Chapter 7, Problem 15P
You have 3 projects with the following cash flows:
- a. For which of these projects is the IRR rule reliable?
- b. Estimate the IRR for each project (to the nearest 1%).
- c. What is the
NPV of each project if the cost of capital is 5%? 20%? 50%?
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You are considering the following two projects and can take only one. Your cost of capital is 10.6%. The cash flows for the two projects a
as follows ($ million):
a. What is the IRR of each project?
b. What is the NPV of each project at your cost of capital?
c. At what cost of capital are you indifferent between the two projects?
d. What should you do?
Data table
(Click on the following icon in order to copy its contents into a spreadsheet.)
Project
Year 0
Year 1
Year 2
A
- $100
$24
$30
B
- $100
$48
$41
Year 3
$41
$30
Year 4
$48
$18
—
X
You are considering the following two projects and can take only one. Your cost of capital is 11.2%. The cash flows for the
two projects are as follows ($ million):
Project Year 0 Year 1 Year 2 Year 3 Year 4
A -100 26 28 42 48
B-100 48 42 28 19
a. What is the IRR of each project?
b. What is the NPV of each project at your cost of capital?
c. At what cost of capital are you indifferent between the two projects?
d. What should you do?
You are considering the following two projects and can take only one. Your cost of capital is 10.7%. The cash flows for the two projects are as follows ($ million):
a. What is the IRR of each project?
b. What is the NPV of each project at your cost of capital?
c. At what cost of capital are you indifferent between the two projects?
d. What should you do?
Data table
(Click on the following icon in order to copy its contents into a spreadsheet.)
a. What is the IRR of each project?
Year 0
Year 1
Year 2
Year 3
Project
A
The IRR for project A is %. (Round to one decimal place.)
$24
$31
$38
- $102
- $102
B
$49
$38
$31
The IRR for project B is%. (Round to one decimal place.)
b. What is the NPV of each project at your cost of capital?
The NPV for project A is $
million. (Round to two decimal places.)
Done
The NPV for project B is $
million. (Round to two decimal places.)
c. At what cost of capital are you indifferent between the two projects?
You will be indifferent if the cost of capital is%.…
Chapter 7 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
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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