Principles of Corporate Finance
13th Edition
ISBN: 9781260465099
Author: BREALEY, Richard
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 10, Problem 14PS
Break-even analysis A financial analyst has computed both accounting and
- a. Would the accounting break-even level of sales in the first years of the project increase or decrease?
- b. Would the NPV break-even level of sales in the first years of the project increase or decrease?
- a. If you were advising the analyst, would the answer to part (a) or (b) be important to you? Specifically, would you say that the switch to immediate expensing makes the project more or less attractive?
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NPV and IRR Benson Designs has prepared the following estimates for a long term project it is considering The initial investment is $60,180, and the project is expected to
yield after-tax cash inflows of $9,000 per year for 10 years. The firm has a cost of capital of 9%
a. Determine the net present value (NPV) for the project.
b. Determine the internal rate of retum (IRR) for the project.
c. Would you recommend that the firm accept or reject the project?
a. The NPV of the project is $ (Round to the nearest cent)
A project has the following estimated data:
Price = $54 per unit
Variable costs = $36 per unit
Fixed costs = $19,300
Required return = 12%
Initial investment = $23,800
Life = 4 years
Ignoring the effect of taxes, what is the:
a). Accounting break-even quantity?
b) Cash break-even quantity?
c) Financial break-even quantity?
d) Degree of operating leverage at the financial break-even level of output?
NPV and maximum return A firm can purchase new equipment for a $22,000 initial investment. The equipment generates an annual after-tax cash inflow of $6,000
for 6 years.
a. Determine the net present value (NPV) of the asset, assuming that the firm has a cost of capital of 9%. Is the project acceptable?
b. Determine the maximum required rate of return that the firm can have and still accept the asset.
a. The net present value (NPV) of the new equipment is $
(Round to the nearest cent.)
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Chapter 10 Solutions
Principles of Corporate Finance
Ch. 10 - Terminology Match each of the following terms to...Ch. 10 - Project analysis True or false? a. Sensitivity...Ch. 10 - Sensitivity analysis Otobais staff (see Section...Ch. 10 - Prob. 4PSCh. 10 - Prob. 7PSCh. 10 - Scenario analysis What is the NPV of the electric...Ch. 10 - Prob. 9PSCh. 10 - Break-even analysis Break-even calculations are...Ch. 10 - Prob. 11PSCh. 10 - Prob. 12PS
Ch. 10 - Prob. 13PSCh. 10 - Break-even analysis A financial analyst has...Ch. 10 - Fixed and variable costs In a slow year, Deutsche...Ch. 10 - Operating leverage You estimate that your cattle...Ch. 10 - Prob. 17PSCh. 10 - Prob. 20PSCh. 10 - Real options Explain why options to expand or...Ch. 10 - Prob. 22PSCh. 10 - Real options True or false? a. Decision trees can...Ch. 10 - Prob. 24PSCh. 10 - Real options An auto plant that costs 100 million...Ch. 10 - Decision trees Look back at the Vegetron electric...Ch. 10 - Prob. 27PSCh. 10 - Prob. 28PSCh. 10 - Prob. 29PSCh. 10 - Prob. 32PS
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