EBK CORPORATE FINANCE
4th Edition
ISBN: 8220103145947
Author: DeMarzo
Publisher: PEARSON
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Question
Chapter 7.2, Problem 1CC
Summary Introduction
To explain: The condition under which the IRR rule and the NPV rule matches for a stand-alone project.
Introduction:
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General Finance Question
Consider the following simplified financial statements for the Yoo Corporation (assuming no income taxes):
Income Statement
Balance Sheet
Sales
Costs
$ 40,000 Assets
34,160
$26,000
Debt
Equity
$ 7,000
19,000
Net income $ 5,840
Total
$26,000
Total
$26,000
The company has predicted a sales increase of 20 percent. Assume Yoo pays out half of net income in the
form of a cash dividend. Costs and assets vary with sales, but debt and equity do not.
Prepare the pro forma statements. (Input all amounts as positive values. Do not round intermediate
calculations and round your answers to the nearest whole dollar amount.)
Pro forma income statement
Sales
Costs
$ 48000
40992
Assets
$ 31200
Pro forma balance sheet
Debt
7000
Equity
19000
Net income
$ 7008
Total
$ 31200
Total
30304
What is the external financing needed? (Do not round intermediate calculations. Negative amount
should be indicated by a minus sign.)
External financing needed
$
896
An insurance company has liabilities of £7 million due in 10 years' time and
£9 million due in 17 years' time.
The assets of the company consist of two zero-coupon bonds, one paying
£X million in 7 years' time and the other paying £Y million in 20 years' time.
The current interest rate is 6% per annum effective.
Find the nominal value of X (i.e. the amount, IN MILLIONS, that bond X pays
in 7 year's time) such that the first two conditions for Redington's theory of
immunisation are satisfied.
Express your answer to THREE DECIMAL PLACES.
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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