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Principles of Corporate Finance
13th Edition
ISBN: 9781260465099
Author: BREALEY, Richard
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Question
Chapter 6, Problem 4PS
Summary Introduction
To find out: Whether the approach of person N to avoid the value of the land as an outlay in his NPV analysis of the funeral home is correct or not.
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Raul Martinas, a professor of languages at Eastern University, owns a small office building adjacent to the university campus. He acquired the property 10 years ago at a total cost of $559,000—that is, $52,000 for the land and $507,000 for the building. He has just received an offer from a realty company that wants to purchase the property; however, the property has been a good source of income over the years, and so Martinas is unsure whether he should keep it or sell it. His alternatives are as follows:
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Raul Martinas, a professor of languages at Eastern University, owns a small office building adjacent to the university campus. He acquired the
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from a realty company that wants to purchase the property: however, the property has been a good source of income over the years, and so
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a Keep the property. Martinas's accountant has kept careful records of the income realized from the property over the past 10 years. These
records indicate the following annual revenues and expenses: Martinas makes a $13,250 mortgage payment each year on the property
The mortgage will be paid off in eight more years. He has been depredating the building by the straight-line method, assuming a salvage
value of $79,500 for the building, which he still thinks is an appropriate figure. He…
A real estate investor has the opportunity to purchase land currently zoned as residential. If the county board approves a request to rezone the property as commercial within the next year, the investor will be able to lease the land to a large discount firm that wants to open a new store on the property. However, if the zoning change is not approved, the investor will have to sell the property at a loss. Profits (in thousands of dollars) are shown in the following payoff table:
State of Nature
Rezoning Approved
Rezoning Not Approved
Decision Alternative
s1
s2
Purchase, d1
600
-200
Do not purchase, d2
0
0
(a)
If the probability that the rezoning will be approved is 0.5, what decision is recommended?
Recommended Decision:
What is the expected profit? Enter your answer in dollars. For example, an answer of $200 thousands should be entered as 200,000.
$
Chapter 6 Solutions
Principles of Corporate Finance
Ch. 6 - Cash flows Which of the following should be...Ch. 6 - Cash flows Reliable Electric, a major Ruritanian...Ch. 6 - Prob. 3PSCh. 6 - Prob. 4PSCh. 6 - Real and nominal flows Mr. Art Deco will be paid...Ch. 6 - Real and nominal flows Restate the net cash flows...Ch. 6 - Real and nominal flows Guandong Machinery is...Ch. 6 - Working capital Each of the following statements...Ch. 6 - Prob. 9PSCh. 6 - Project NPV Better Mousetraps research...
Ch. 6 - Project NPV A widget manufacturer currently...Ch. 6 - Project NPV Marsha Jones has bought a used...Ch. 6 - Project NPV United Pigpen is considering a...Ch. 6 - Project NPV Imperial Motors is considering...Ch. 6 - Project NPV and IRR A project requires an initial...Ch. 6 - Taxes and project NPV In the International Mulch...Ch. 6 - Depreciation and project NPV Suppose that Sudbury...Ch. 6 - Depreciation and project NPV Ms. T. Potts, the...Ch. 6 - Prob. 20PSCh. 6 - Prob. 21PSCh. 6 - Prob. 22PSCh. 6 - Equivalent annual cash flow Look at Problem 22...Ch. 6 - Equivalent annual cash flow Deutsche Transport can...Ch. 6 - Prob. 25PSCh. 6 - Mutually exclusive investments and project lives...Ch. 6 - Mutually exclusive investments and project lives...Ch. 6 - Mutually exclusive investments and project lives....Ch. 6 - Mutually exclusive investments and project lives...Ch. 6 - Mutually exclusive investments and project lives...Ch. 6 - Replacement decisions Machine C was purchased five...Ch. 6 - Replacement decisions Hayden Inc. has a number of...Ch. 6 - Replacement decisions. You are operating an old...Ch. 6 - Replacement decisions. A forklift will last for...Ch. 6 - The cost of excess capacity The presidents...Ch. 6 - Effective tax rates One measure of the effective...Ch. 6 - Equivalent annual costs We warned that equivalent...
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