FOUND.OF FINANCIAL MANAGEMENT-ACCESS
17th Edition
ISBN: 9781260519969
Author: BLOCK
Publisher: MCG
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Chapter 12, Problem 24P
Davis Chili Company is considering an investment of
You are going to use the
a. Determine the net present value of the project based on a zero discount rate.
b. Determine the net present value of the project based on a 10 percent discount rate.
c. Determine the net present value of the project based on a 15 percent
discount rate (it will be negative).
d. Draw a net present value profile for the investment and observe the discount rate at which
the net present value is zero. This is an approximation of the internal rate of return based
on the procedure presented in this chapter.
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Please answer the following questions using the information below:
NPV. Using a 10% required rate of return, calculate the NPV for this project. Should it be accepted or rejected?
PI. Calculate the Profitability Index (PI) for this project. Should it be accepted or rejected?
Consider the following cash flows:
Year 0 1 2 3 4 5 6
Cash Flow -$8,000 $3,000 $3,600 $2,700 $2,500 $2,100 $1,600
Payback. The company requires all projects to payback within 3 years. Calculate the payback period. Should it be accepted or rejected?
Discounted Payback. Calculate the discounted payback using a discount rate of 10%. Should it be accepted or rejected?
IRR. Calculate the IRR for this project. The company’s required rate of return is 10%. Should it be accepted or rejected?
NPV. Using a 10% required rate of return, calculate the NPV for this project. Should it be accepted or rejected?
PI. Calculate the Profitability Index (PI) for this project. Should it be accepted or rejected?…
Find the modified internal rate of return (MIRR) for a proposed project costing $12,513. Assume
that the appropriate cost of capital for projects of this risk level, at this company is 10.96%, and
the estimated cash flows for the life of the project are found in the table below. (If you calculate
an MIRR of 20.22% , please enter 20.22- do not include the % symbol, and use at least two decimal
places).
Year 1
$7,261
Year 2
$4,832
Year 3
$9,441.2
Year 4
$13,000
Year 5
$12,638
Use the following data to answer questions (a) to (d).
A company is considering the purchase of a copier that costs RM 50,000. Assume the required rate of return is 10% and the following is cash flow schedule:
Year 1: RM 20,000
Year 2: RM 30,000
Year 3: RM 20,000
What is the project’s payback period?
What is the project’s NPV?
What is the project’s IRR?
What is the project’s profitability index (PI)?
Chapter 12 Solutions
FOUND.OF FINANCIAL MANAGEMENT-ACCESS
Ch. 12 - Prob. 1DQCh. 12 - Why does capital budgeting rely on analysis of...Ch. 12 - Prob. 3DQCh. 12 - Prob. 4DQCh. 12 - What does the term mutually exclusive investments...Ch. 12 - Prob. 6DQCh. 12 - If a corporation has projects that will earn more...Ch. 12 - What is the net present value profile? What three...Ch. 12 - How does an asset’s ADR (asset depreciation...Ch. 12 - Assume a corporation has earnings before...
Ch. 12 - Assume a corporation has earnings before...Ch. 12 - Assume a firm has earnings before depreciation and...Ch. 12 - Assume a firm has earnings before depreciation and...Ch. 12 - Al Quick, the president of a New York Stock...Ch. 12 - Prob. 6PCh. 12 - Prob. 7PCh. 12 - Assume a 90,000 investment and the following cash...Ch. 12 - Prob. 9PCh. 12 - X-treme Vitamin Company is considering two...Ch. 12 - You buy a new piece of equipment for 16,230, and...Ch. 12 - Prob. 12PCh. 12 - Home Security Systems is analyzing the purchase of...Ch. 12 - Aerospace Dynamics will invest 110,000 in a...Ch. 12 - The Horizon Company will invest 60,000 in a...Ch. 12 - Skyline Corp. will invest 130,000 in a project...Ch. 12 - The Hudson Corporation makes an investment of ...Ch. 12 - The Pan American Bottling Co. is considering the...Ch. 12 - You are asked to evaluate the following two...Ch. 12 - Turner Video will invest 76,344 in a project. The...Ch. 12 - The Suboptimal Glass Company uses a process of...Ch. 12 - Keller Construction is considering two new...Ch. 12 - Davis Chili Company is considering an investment...Ch. 12 - Telstar Communications is going to purchase an...Ch. 12 - Assume 65,000 is going to be invested in each of...Ch. 12 - The Summit Petroleum Corporation will purchase an...Ch. 12 - Oregon Forest Products will acquire new equipment...Ch. 12 - Universal Electronics is considering the purchase...Ch. 12 - Prob. 30PCh. 12 - Prob. 31PCh. 12 - Prob. 32PCh. 12 - Hercules Exercise Equipment Co. purchased a...Ch. 12 - Prob. 2WECh. 12 - Returning to TXN’s summary page, record the...
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