Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Chapter 7, Problem 16QAP
Summary Introduction
To calculate: The Sensitivity of the
Introduction: After considering the specific set of assumptions, sensitivity analysis helps to evaluate the phenomena of how an independent variable impacts a specific dependent variable.
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When modeling the expected return of an income producing property, why should it be defined, for example, a correlation of -0.60 between the NOI growth and the vacancy rate?
a. To increase the probability that the computer draws higher values of NOI growth when it draws higher values of vacancy, from their respective distributions, and vice versa.
b. To increase the probability that the computer draws lower values of NOI growth when it draws lower values of vacancy, from their respective distributions, and vice versa.
c. To increase the probability that the computer draws lower values of NOI growth when it draws higher values of vacancy, from their respective distributions, and vice versa.
d. Both “b” and “c”
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Problem #2
Lebanon Metal Company (LMC), a manufacturer of various metal parts, must decide
whether to enter the competition to become the supplier of transmission housings for Gulf
Electric, a company that produces the housings in its own in-house manufacturing To
compete, LMC must purchase a new forge that will cost $ 1 50,000.
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for $60 each, and costs will be $15 per unit.
The firm expects that the project will have about five-year product life. The firm also
estimates that the amount ordered by Gulf Electric in the first year will be ordered in each
of the subsequent four years.
The initial investment can be depreciated on a MACRS-GDS basis over a 5-year period, and
the tax-rate is expected to remain 40%. At the end of five years, the forge is expected to
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LMC's before tax MARR is 15% per year.
Chapter 7 Solutions
Corporate Finance
Ch. 7 - Forecasting Risk What is forecasting risk? In...Ch. 7 - Sensitivity Analysis and Scenario Analysis What is...Ch. 7 - Prob. 3CQCh. 7 - Break-Even Point As a shareholder of a firm that...Ch. 7 - Prob. 5CQCh. 7 - Real Options Why does traditional NPV analysis...Ch. 7 - Real Options The Mango Republic has just...Ch. 7 - Prob. 8CQCh. 7 - Prob. 9CQCh. 7 - Project Analysis You are discussing a project...
Ch. 7 - Sensitivity Analysis and Break-Even Point We are...Ch. 7 - Prob. 2QAPCh. 7 - Prob. 3QAPCh. 7 - Prob. 4QAPCh. 7 - Prob. 5QAPCh. 7 - Prob. 6QAPCh. 7 - Prob. 7QAPCh. 7 - Prob. 8QAPCh. 7 - Prob. 9QAPCh. 7 - Prob. 10QAPCh. 7 - Prob. 11QAPCh. 7 - Prob. 12QAPCh. 7 - Prob. 13QAPCh. 7 - Prob. 14QAPCh. 7 - Prob. 15QAPCh. 7 - Prob. 16QAPCh. 7 - Prob. 17QAPCh. 7 - Prob. 18QAPCh. 7 - Prob. 19QAPCh. 7 - Prob. 20QAPCh. 7 - Prob. 21QAPCh. 7 - Prob. 22QAPCh. 7 - Prob. 23QAPCh. 7 - Prob. 24QAPCh. 7 - Prob. 25QAPCh. 7 - Prob. 26QAPCh. 7 - Prob. 28QAPCh. 7 - Prob. 29QAPCh. 7 - Prob. 30QAP
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