After changing the following assumptions for income projections: The sales will not be constant over the four-year life of the project, since other companies are likely to offer competing products. The prices are expected to decline 10% annually. With increase in sales every year by 50,000 units, the scale economies will reduce the cost of production per unit by 20% annually. The new tax laws permit that the equipment will be depreciated over three years rather than five years. The recomputed income projections are as follows:

Question

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Answer 1

Question

Chapter 8, Problem 11P

a.

Summary Introduction

After changing the following assumptions for income projections:

The sales will not be constant over the four-year life of the project, since other companies are likely to offer competing products. The prices are expected to decline 10% annually.

With increase in sales every year by 50,000 units, the scale economies will reduce the cost of production per unit by 20% annually.

The new tax laws permit that the equipment will be depreciated over three years rather than five years.

The recomputed income projections are as follows:

b.

Summary Introduction

Derive the free cash flow from the income projections as shown below:

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Answer 2

Question

Chapter 8, Problem 11P

a.

Summary Introduction

After changing the following assumptions for income projections:

The sales will not be constant over the four-year life of the project, since other companies are likely to offer competing products. The prices are expected to decline 10% annually.

With increase in sales every year by 50,000 units, the scale economies will reduce the cost of production per unit by 20% annually.

The new tax laws permit that the equipment will be depreciated over three years rather than five years.

The recomputed income projections are as follows:

b.

Summary Introduction

Derive the free cash flow from the income projections as shown below:

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Answer 3

Question

Chapter 8, Problem 11P

a.

Summary Introduction

After changing the following assumptions for income projections:

The sales will not be constant over the four-year life of the project, since other companies are likely to offer competing products. The prices are expected to decline 10% annually.

With increase in sales every year by 50,000 units, the scale economies will reduce the cost of production per unit by 20% annually.

The new tax laws permit that the equipment will be depreciated over three years rather than five years.

The recomputed income projections are as follows:

b.

Summary Introduction

Derive the free cash flow from the income projections as shown below:

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Answer 4

Question

Chapter 8, Problem 11P

a.

Summary Introduction

After changing the following assumptions for income projections:

The sales will not be constant over the four-year life of the project, since other companies are likely to offer competing products. The prices are expected to decline 10% annually.

With increase in sales every year by 50,000 units, the scale economies will reduce the cost of production per unit by 20% annually.

The new tax laws permit that the equipment will be depreciated over three years rather than five years.

The recomputed income projections are as follows:

b.

Summary Introduction

Derive the free cash flow from the income projections as shown below:

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Answer 5

Chapter 8, Problem 11P

a.

Summary Introduction

After changing the following assumptions for income projections:

The sales will not be constant over the four-year life of the project, since other companies are likely to offer competing products. The prices are expected to decline 10% annually.

With increase in sales every year by 50,000 units, the scale economies will reduce the cost of production per unit by 20% annually.

The new tax laws permit that the equipment will be depreciated over three years rather than five years.

The recomputed income projections are as follows:

b.

Summary Introduction

Derive the free cash flow from the income projections as shown below:

Answer 6

Chapter 8, Problem 11P

a.

Summary Introduction

After changing the following assumptions for income projections:

The sales will not be constant over the four-year life of the project, since other companies are likely to offer competing products. The prices are expected to decline 10% annually.

With increase in sales every year by 50,000 units, the scale economies will reduce the cost of production per unit by 20% annually.

The new tax laws permit that the equipment will be depreciated over three years rather than five years.

The recomputed income projections are as follows:

Answer 7

Chapter 8, Problem 11P

a.

Summary Introduction

After changing the following assumptions for income projections:

The sales will not be constant over the four-year life of the project, since other companies are likely to offer competing products. The prices are expected to decline 10% annually.

With increase in sales every year by 50,000 units, the scale economies will reduce the cost of production per unit by 20% annually.

The new tax laws permit that the equipment will be depreciated over three years rather than five years.

The recomputed income projections are as follows:

Answer 8

b.

Summary Introduction

Derive the free cash flow from the income projections as shown below:

Answer 9

b.

Summary Introduction

Derive the free cash flow from the income projections as shown below:

Answer 10

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Answer 11

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Answer 12

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Answer 13

Ch. 8.1 - How do we forecast unlevered net income?Ch. 8.1 - Prob. 2CC Ch. 8.1 - Prob. 3CC Ch. 8.2 - Prob. 1CC Ch. 8.2 - What is the depreciation tax shield?Ch. 8.3 - Prob. 1CC Ch. 8.3 - Prob. 2CC Ch. 8.4 - Prob. 1CC Ch. 8.4 - What is the continuation or terminal value of a...Ch. 8.5 - Prob. 1CC

Derive the free cash flow from the income projections as shown below:

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Chapter 8 Solutions