Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 12, Problem 19PS
EVA Use the Beyond the Page feature to access the Excel program for calculating the profitability of the Nodhead project. Now suppose that the cash flows from Nodhead’s new supermarket are as follows:
- a. Recalculate economic
depreciation. Is it accelerated or decelerated? - b. Rework Tables 12.2 and 12.3 to show the relationship between (a) the “true”
rate of return and bookROI and (b) true EVA andforecasted EVA in each year of the project’s life.
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Calculate the Accounting Rate of Return (on average investment) of Project B (expressed to twodecimal places).Calculate the Net Present Value of each project (with amounts rounded off to the nearest Rand). Use your answers from previous question to recommend the project that should be chosen. Motivateyour choice.
You have determined the profitability of a planned project by finding the present value of all the cash flows from that project. Which of the following would cause the project to look more appealing in terms of the present value of those cash flows?
A. The discount rate increases.
B. The cash flows are extended over a longer period of time, but the total amount of the cash flows remains the same.
C. The discount rate decreases.
D. Answers B and C above.
E. Answers A and B above.
A company is considering three alternative Investment projects with different net cash flows. The present value of net cash flows is
calculated using Excel and the results follow.
Potential Projects
Present value of net cash flows (excluding initial investment)
Initial investment
Complete this question by entering your answers in the tabs below.
a. Compute the net present value of each project.
b. If the company accepts all positive net present value projects, which of these will It accept?
c. If the company can choose only one project, which will it choose on the basis of net present value?
Required A Required B
Compute the net present value of each project.
Potential Projects
Project A
Present value of net cash flows
Initial investment
Net present value
Required C
Project E
Project C
$10,685
(10,000)
Chapter 12 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 12 - Prob. 1PSCh. 12 - Terminology Define the following: a. Agency costs...Ch. 12 - Prob. 3PSCh. 12 - EVA Here are several questions about economic...Ch. 12 - Accounting measures of performance The Modern...Ch. 12 - Economic income Fill in the blanks: A projects...Ch. 12 - Prob. 7PSCh. 12 - Prob. 8PSCh. 12 - Prob. 9PSCh. 12 - Prob. 10PS
Ch. 12 - Management compensation We noted that management...Ch. 12 - Prob. 12PSCh. 12 - Prob. 13PSCh. 12 - Prob. 14PSCh. 12 - EVA Herbal Resources is a small but profitable...Ch. 12 - Prob. 16PSCh. 12 - Economic income Consider the following project:...Ch. 12 - EVA Use the Beyond the Page feature to access the...Ch. 12 - Accounting measures of performance Use the Beyond...Ch. 12 - EVA Ohio Building Products (OBP) is considering...
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