Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Chapter 11, Problem 1SP
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To determine: The incremental cash flows for the new restaurants.
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Wildcat Pizza, Inc. would like to open a new restaurant in Boston. The initial investment to purchase the building is $420,000, and an additional $50,000 in working capital is required. Since this store will be operating for many years, the working capital will not be returned in the near future.
Wildcat expects to remodel the store at the end of 3 years at a cost of $100,000. Annual net cash receipts from daily operations (cash receipts minus cash payments) are expected to be as follows:
Year 1
$80,000
Year 2
$115,000
Year 3
$118,000
Year 4
$140,000
Year 5
$155,000
Year 6
$167,000
Year 7
$175,000
The company’s required rate of return is 13 percent. Assume management decided to limit the analysis to 7 years.
Calculate the payback period (include working capital in the initial investment). Assuming management requires all investments to be recovered within three years, should Wildcat Pizza open the new store?
What is the weakness of using the payback period method to…
Wildcat Pizza, Inc. would like to open a new restaurant in Boston. The initial investment to purchase the building is $420,000, and an additional $50,000 in working capital is required. Since this store will be operating for many years, the working capital will not be returned in the near future.
Wildcat expects to remodel the store at the end of 3 years at a cost of $100,000. Annual net cash receipts from daily operations (cash receipts minus cash payments) are expected to be as follows:
Year 1
$80,000
Year 2
$115,000
Year 3
$118,000
Year 4
$140,000
Year 5
$155,000
Year 6
$167,000
Year 7
$175,000
The company’s required rate of return is 13 percent. Assume management decided to limit the analysis to 7 years.
Find the net present value of this investment.
Use trial and error to approximate the internal rate of return for this investment proposal.
Based on your answer to requirements a and b, should Wildcat Pizza, open the new store? Explain.
Calculate the payback…
Wildcat Pizza, Inc. would like to open a new restaurant in Boston. The initial investment to purchase the building is $420,000, and an additional $50,000 in working capital is required. Since this store will be operating for many years, the working capital will not be returned in the near future.
Wildcat expects to remodel the store at the end of 3 years at a cost of $100,000. Annual net cash receipts from daily operations (cash receipts minus cash payments) are expected to be as follows:
Year 1
$80,000
Year 2
$115,000
Year 3
$118,000
Year 4
$140,000
Year 5
$155,000
Year 6
$167,000
Year 7
$175,000
The company’s required rate of return is 13 percent. Assume management decided to limit the analysis to 7 years.
Find the net present value of this investment. = 81, 067
Use trial and error to approximate the internal rate of return for this investment proposal.
Calculate the payback period (include working capital in the initial investment).…
Chapter 11 Solutions
Foundations Of Finance
Ch. 11.A - Prob. 1MCCh. 11.A - Prob. 2MCCh. 11 - Prob. 1RQCh. 11 - Prob. 2RQCh. 11 - If a project requires an additional investment in...Ch. 11 - Prob. 4RQCh. 11 - Prob. 5RQCh. 11 - Prob. 6RQCh. 11 - Prob. 1SPCh. 11 - (Relevant cash flows) Captins Cereal is...
Ch. 11 - Prob. 3SPCh. 11 - Prob. 4SPCh. 11 - Prob. 5SPCh. 11 - Prob. 6SPCh. 11 - Prob. 7SPCh. 11 - Prob. 9SPCh. 11 - Prob. 10SPCh. 11 - Prob. 11SPCh. 11 - Prob. 12SPCh. 11 - Prob. 15SPCh. 11 - (Real options and capital budgeting) You have come...Ch. 11 - (Real options and capital budgeting) Go-Power...Ch. 11 - (Real options and capital budgeting) McDoogals...Ch. 11 - (Risk-adjusted NPV) The Hokie Corporation is...Ch. 11 - (Risk-adjusted discount rates and risk classes)...Ch. 11 - Prob. 1MCCh. 11 - Prob. 2MCCh. 11 - Prob. 3MCCh. 11 - Prob. 7MCCh. 11 - Prob. 8MCCh. 11 - Prob. 9MCCh. 11 - Should the project be accepted? Why or why not?Ch. 11 - Prob. 11MCCh. 11 - Prob. 12MCCh. 11 - Prob. 13MCCh. 11 - Prob. 14MC
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