Principles of Corporate Finance
13th Edition
ISBN: 9781260465099
Author: BREALEY, Richard
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 11, Problem 18PS
Summary Introduction
To determine:
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1. Marginal Cost-Benefit Analysis
As a financial analyst for Longview Products Company, you have been asked to evaluate a
proposal for new, more efficient manufacturing equipment. The existing equipment will produce
benefits over the next five years of $780,000 in today's dollars. The proposed new equipment
will produce benefits of $970,000 in today's dollars over the same period. The installed cost of
the new equipment is $300,000; the old equipment can be sold for $130,000.
Apply marginal cost-benefit analysis to determine:
a. The marginal benefits of the new equipment
b. The marginal costs of the new equipment
c. The net benefit of the new equipment
d. Based on your calculations, what do you recommend? Why?
e. What factors other than the costs and benefits should be considered before the final
decision is made?
2. Interest verens Dividend Exnence
1. Marginal Cost-Benefit Analysis
As a financial analyst for Longview Products Company, you have been asked to evaluate a
proposal for new, more efficient manufacturing equipment. The existing equipment will produce
benefits over the next five years of $780,000 in today's dollars. The proposed new equipment
will produce benefits of $970,000 in today's dollars over the same period. The installed cost of
the new equipment is $300,000; the old equipment can be sold for $130,000.
Apply marginal cost-benefit analysis to determine:
a. The marginal benefits of the new equipment
b. The marginal costs of the new equipment
c. The net benefit of the new equipment
d. Based on your calculations, what do you recommend? Why?
e. What factors other than the costs and benefits should be considered before the final
decision is made?
2. Interest versus Dividend Expense
Longview Products Company (LPC) expects earnings before interest and taxes of $575,000 for
this year. Under the 2018 tax law, LPC is…
Economics
A new process for manufacturing lead pencils will
have a first cost of $35,000 and annual costs of
$17,000. The new process will double their
capacity. The extra income expected from the new
process is $22,000 per year. (a) What is the no-
return payback period for this project? (b) What is
the payback period at an interest rate of 10% per
year?
Chapter 11 Solutions
Principles of Corporate Finance
Ch. 11 - Capital budgeting process True or false? a. The...Ch. 11 - Capital budgeting process Explain how each of the...Ch. 11 - Capital budgeting process Draw up an outline or...Ch. 11 - Prob. 4PSCh. 11 - Biased forecasts Look back to the cash flows for...Ch. 11 - Prob. 6PSCh. 11 - Prob. 7PSCh. 11 - Prob. 8PSCh. 11 - Market prices Suppose the current price of gold is...Ch. 11 - Prob. 10PS
Ch. 11 - Prob. 11PSCh. 11 - Prob. 12PSCh. 11 - Prob. 13PSCh. 11 - Economic rents True or false? a. A firm that earns...Ch. 11 - Prob. 16PSCh. 11 - Economic rents Thanks to acquisition of a key...Ch. 11 - Prob. 18PSCh. 11 - Prob. 19PSCh. 11 - Prob. 20PSCh. 11 - Prob. 21PSCh. 11 - Prob. 22PSCh. 11 - Economic rents Taxes are a cost, and, therefore,...Ch. 11 - Prob. 1MCCh. 11 - Libby Flannery, the regional manager of Ecsy-Cola,...
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