EBK CORPORATE FINANCE
EBK CORPORATE FINANCE
4th Edition
ISBN: 8220103164535
Author: DeMarzo
Publisher: PEARSON
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Chapter 8, Problem 5P

Table 8.1 Spreadsheet HomeNet’s Incremental Earnings Forecast

Chapter 8, Problem 5P, Table 8.1 Spreadsheet HomeNets Incremental Earnings Forecast 5. After looking at the projections of

5. After looking at the projections of the HomeNet project, you decide that they are not realistic. It is unlikely that sales will be constant over the four-year life of the project. Furthermore, other companies are likely to offer competing products, so the assumption that the sales price will remain constant is also likely to be optimistic. Finally, as production ramps up, you anticipate lower per unit production costs resulting from economies of scale. Therefore, you decide to redo the projections under the following assumptions: Sales of 50,000 units in year 1 Increasing by 50,000 units per year over the life of the project, a year 1 sales price of $260/unit, decreasing by 10% annually and a year 1 cost of $120/ unit decreasing by 20% annually. In addition, new tax laws allow you to depreciate the equipment over three rather than five years using straight-line depreciation.

  1. a. Keeping the other assumptions that underlie Table 8.1 the same, recalculate unlevered net income (that is, reproduce Table 8.1 under the new assumptions, and note that we are ignoring cannibalization and lost rent).
  2. b. Recalculate unlevered net income assuming, in addition, that each year 20% of sales comes from customers who would have purchased an existing Cisco router for $100/unit and that this router costs $60/unit to manufacture.
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1 Scenario AnalysisShao Industries is considering a proposed project for its capital budget. Thecompany estimates the project’s NPV is $12 million. This estimate assumesthat the economy and market conditions will be average over the next fewyears. The company’s CFO, however, forecasts there is only a 50% chancethat the economy will be average. Recognizing this uncertainty, she has alsoperformed the following scenario analysis: Economic Scenario               Probability of Outcome       NPVRecession                                      0.05                           -$70 millionBelow average                              0.20                            -25 millionAverage                                         0.50                              12 millionAbove average                              0.20                             20 millionBoom                                            0.05                              30 millionWhat are the project’s expected NPV, standard deviation,…
Chapter 13 - Dropbox 2.4 Problem 1: Calculating Expected Return Based on the following information, calculate the expected return: Probability of this Portfolio Return if State of Economy Recession Normal Boom State Occuring State Occurs 10% - 18% 60% 11 % 30 % 26% Create your Original Solution Below - Be sure to show all calculations and clearly indicate answers.
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