Corporate Finance
Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Chapter 7, Problem 24QAP

A

Summary Introduction

Adequate information:

Company can sell 20 units per year at $235,000 net cash flow per unit for the next five years.

Developing the machine will take $17.6 million initial investment.

Discount rate is 11% .

To compute: Base-case NPV

Introduction: The current value of a stream of payments from a business, project, or investment is determined using net present value (NPV).

B

Summary Introduction

Adequate information:

Company can sell 20 units per year at $235,000 net cash flow per unit for the next five years.

Developing the machine will take $17.6 million initial investment.

Discount rate is 11% .

If unsuccessful, after the first year, the project can be dismantled and will have an after-tax salvage value of $10.4 million.

After the first year, expected cash flows will be revised up to 30 units per year or down to 0 units with equal probability.

To compute: Revised NPV

Introduction: The current value of a stream of payments from a business, project, or investment is determined using net present value (NPV).

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