Net present value . Introduction: The difference between the present value of cash inflows and cash outflows is termed as NPV (Net present value) .

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Answer 1

Question

Chapter 7, Problem 18P

a)

Summary Introduction

To determine: Net present value.

Introduction:

The difference between the present value of cash inflows and cash outflows is termed as NPV (Net present value).

b)

Summary Introduction

To determine: Whether the usage of IRR (Internal rate of return) is reliable for the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation.

c)

Summary Introduction

To determine: The internal rate of return of the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation. IRR is the rate at which the cash flows from the project will be equal to zero.

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The common shares of Almond Beach Inc, have a beta of 0.75, offer areturn of 9%, and have an historical standard deviation of return of17%. Alternatively, the common shares of Palm Beach Inc. have a betaof 1.25, offer a return of 10%, and have an historical standarddeviation of return of 13%. Both firms have a marginal tax rate of37%. The risk-free rate of return is 3% and the expected rate ofreturn on the market portfolio is 9½%.1. Which company would a well-diversified investor prefer to investin? Explain why and show all calculations.2. Which company Would an investor who can invest in the shares ofonly one firm prefer to invest in? Explain why.

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Answer 2

Question

Chapter 7, Problem 18P

a)

Summary Introduction

To determine: Net present value.

Introduction:

The difference between the present value of cash inflows and cash outflows is termed as NPV (Net present value).

b)

Summary Introduction

To determine: Whether the usage of IRR (Internal rate of return) is reliable for the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation.

c)

Summary Introduction

To determine: The internal rate of return of the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation. IRR is the rate at which the cash flows from the project will be equal to zero.

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Answer 3

Question

Chapter 7, Problem 18P

a)

Summary Introduction

To determine: Net present value.

Introduction:

The difference between the present value of cash inflows and cash outflows is termed as NPV (Net present value).

b)

Summary Introduction

To determine: Whether the usage of IRR (Internal rate of return) is reliable for the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation.

c)

Summary Introduction

To determine: The internal rate of return of the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation. IRR is the rate at which the cash flows from the project will be equal to zero.

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Answer 4

Question

Chapter 7, Problem 18P

a)

Summary Introduction

To determine: Net present value.

Introduction:

The difference between the present value of cash inflows and cash outflows is termed as NPV (Net present value).

b)

Summary Introduction

To determine: Whether the usage of IRR (Internal rate of return) is reliable for the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation.

c)

Summary Introduction

To determine: The internal rate of return of the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation. IRR is the rate at which the cash flows from the project will be equal to zero.

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Answer 5

Chapter 7, Problem 18P

a)

Summary Introduction

To determine: Net present value.

Introduction:

The difference between the present value of cash inflows and cash outflows is termed as NPV (Net present value).

b)

Summary Introduction

To determine: Whether the usage of IRR (Internal rate of return) is reliable for the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation.

c)

Summary Introduction

To determine: The internal rate of return of the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation. IRR is the rate at which the cash flows from the project will be equal to zero.

Answer 6

Chapter 7, Problem 18P

a)

Summary Introduction

To determine: Net present value.

Introduction:

The difference between the present value of cash inflows and cash outflows is termed as NPV (Net present value).

Answer 7

Chapter 7, Problem 18P

a)

Summary Introduction

To determine: Net present value.

Introduction:

The difference between the present value of cash inflows and cash outflows is termed as NPV (Net present value).

Answer 8

b)

Summary Introduction

To determine: Whether the usage of IRR (Internal rate of return) is reliable for the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation.

Answer 9

b)

Summary Introduction

To determine: Whether the usage of IRR (Internal rate of return) is reliable for the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation.

Answer 10

c)

Summary Introduction

To determine: The internal rate of return of the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation. IRR is the rate at which the cash flows from the project will be equal to zero.

Answer 11

c)

Summary Introduction

To determine: The internal rate of return of the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation. IRR is the rate at which the cash flows from the project will be equal to zero.

Answer 12

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Answer 13

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Answer 14

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Answer 15

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. 1CC Ch. 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. 2CC Ch. 7.4 - For mutually exclusive projects, explain why...Ch. 7.4 - What is the incremental RR and what are its...Ch. 7.5 - Prob. 1CC Ch. 7.5 - Prob. 2CC

Net present value . Introduction: The difference between the present value of cash inflows and cash outflows is termed as NPV (Net present value) .

To determine: Net present value. Introduction: The difference between the present value of cash inflows and cash outflows is termed as NPV (Net present value).

To determine: Whether the usage of IRR (Internal rate of return) is reliable for the project. Introduction: Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation.

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Chapter 7 Solutions

To determine: Net present value.

Introduction:

The difference between the present value of cash inflows and cash outflows is termed as NPV (Net present value).

To determine: Whether the usage of IRR (Internal rate of return) is reliable for the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation.