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

Question

Want to see the full answer?

Answer 1

Question

Chapter 7, Problem 20P

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.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

You are considering constructing a new plant in a remote wilderness area to process the ore from aplanned mining operation. You anticipate that the plant will take a year to build and cost $99 millionupfront. Once built, it will generate cash flows of $12 million at the end of every year over the life of theplant. The plant will be useless 20 years after its completion once the mine runs out of ore. At that pointyou expect to pay $141 million to shut the plant down and restore the area to its pristine state. Using acost of capital of 12%,a. What is the NPV of the project?b. Is using the IRR rule reliable for this project? Explain.c. What are the IRR’s of this project?

You own a coal mining company and are considering opening a new mine. The mine itself will cost $120 million to open. If this money is spent immediately, the mine will generate $21 million for the next 10 years. After that, the coal will run out and the site must be cleaned and maintained at environmental standards. The cleaning and maintenance are expected to cost $1.9 million per year in perpetuity. What does the IRR rule say about whether you should accept this opportunity? (Hint: Consider the number of sign changes in the cash flows.) If the cost of capital is 8.2%, what does the NPV rule say? What does the IRR rule say about whether you should accept this opportunity? (Select the best choice below.) The IRR is 10.41%, so accept the opportunity Accept the opportunity because the IRR is greater than the cost of capital. There are twoIRRs, so you cannot use the IRR as a criterion for accepting the opportunity. Reject the opportunity because the IRR is lower than the 8.2%…

You are considering purchasing a new injection molding machine. This machine will have an estimated service life of 10 years with negligible after-tax salvage value. Its annual net after-tax operating cash flows are estimated to be $60,000. If you expect a 15% rate of return on investment, what would be the maximum amount that you should spend to purchase the injection molding machine?

Answer 2

Question

Chapter 7, Problem 20P

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.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 3

Question

Chapter 7, Problem 20P

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.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 4

Question

Chapter 7, Problem 20P

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.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 5

Chapter 7, Problem 20P

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 20P

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 20P

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

Expert Solution & Answer

Answer 13

Expert Solution & Answer

Answer 14

Want to see the full answer?

Check out a sample textbook solution

See solution

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) .

Solution Summary: The author explains that the difference between the present value of cash inflows and cash out flows is termed as NPV.

Concept explainers

Videos

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.

Want to see the full answer?

Chapter 7 Solutions

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

Solution Summary: The author explains that the difference between the present value of cash inflows and cash out flows is termed as NPV.

Concept explainers

Videos

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.

Want to see the full answer?

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.