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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

REAL OPTIONS Use a spreadsheet model to evaluate the project analyzed in problem 13-7.

a.

Summary Introduction

To Determine: The expected NPV of the project if the tax is imposed.

Introduction: The net present value is also termed as the discounted cash flow approach is a mainstream capital budget method that considers the time value of cash. It utilizes net present value of the investment as the base to accept or reject a projected investment in projects like buying of new machine, buying of stock or inventory etc.

Explanation

Determine the net present value if the tax is imposed

Using a excel spreadsheet, the net present value if the tax is imposed is determined as -$2,113,481.31.

Excel Spreadsheet:

b.

Summary Introduction

To Determine: The expected NPV of the project if the tax is not imposed.

c.

Summary Introduction

To Determine: The expected NPV of the project if the management proceeds with it today.

d.

Summary Introduction

To Determine: Whether the existence of the abandonment option affect the company’s decision to proceed with the project today.

e.

Summary Introduction

To Determine: The most the company would pay today.

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