UPENN: LOOSE LEAF CORP.FIN W/CONNECT
17th Edition
ISBN: 9781260361278
Author: Ross
Publisher: McGraw-Hill Publishing Co.
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Chapter 7, Problem 19QP
Summary Introduction
To identify: The project NPV.
It refers to the value of an amount today after considering the
Capital Budgeting:
The decision-related to the investment for long run is called capital budgeting. Capital budgeting includes the investment in the heavy machinery and information technology.
The net present value is a differential amount of the net
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Consider two mutually exclusive alternatives and the do-nothing approach. Project X has an initial investment of $175 and annual positive cash flows of $65 for four years. Project Y has an initial investment of $88 and annual positive cash flows of $25 for four years. Determine the following:
at what interest rates Project X would be attractive?
at what interest rates would Project Y be attractive?
at what interest rates would it be best to do nothing.
Desai Industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should
increase with inflation. Fixed costs will also be constant, but variable costs should rise with inflation. The project should last for 3 years, it will be depreciated
on a straight-line basis, and there will be no salvage value. No change in net operating working capital would be required. This is just one of many projects for
the firm, so any losses on this project can be used to offset gains on other firm projects. What is the project's expected NPV?
10.0%
$200,000
39,000
$25.00
WACC
Net investment cost (depreciable basis)
Units sold
Average price per unit, Year 1
Fixed op. costs excl. depr. (constant)
Variable op. cost/unit, Year 1
Annual depreciation rate
Expected inflation rate per year
Tax rate
Oa. -$64.886
Ob. -$66,833
Oc. -$72,673
O d. -$73,970
O e. -$60,993
$150,000
$20.20
33.333%
5.00%
40.0%
RFS Inc. has an ongoing project to enter a new market. A task force has conducted market analysis, and it shows that the future project value will vary depending on the market condition. Specifically, the project value will be $18 million one year from today if the market condition is good. On the other hand, the project value will be $8 million if the market condition is poor. Suppose that you have an abandonment option that allows you to dispose the project for $10 million next year if you want. What is the value of the option? Assume that the discount rate is 5% and the value of the project without the option is $12 million today (Your answer should be in millions. Round to the nearest hundredth. e.g., 15.16666 must be expressed as 15.17).
Chapter 7 Solutions
UPENN: LOOSE LEAF CORP.FIN W/CONNECT
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. 2QPCh. 7 - Prob. 3QPCh. 7 - Prob. 4QPCh. 7 - Prob. 5QPCh. 7 - Decision Trees Ang Electronics. Inc., has...Ch. 7 - Decision Trees The manager for a growing firm is...Ch. 7 - Prob. 8QPCh. 7 - Prob. 9QPCh. 7 - Financial Break-Even Niko has purchased a brand...Ch. 7 - Prob. 11QPCh. 7 - Prob. 12QPCh. 7 - Project Analysis You are considering a new product...Ch. 7 - Project Analysis McGilla Golf has decided to sell...Ch. 7 - Prob. 17QPCh. 7 - Prob. 18QPCh. 7 - Prob. 19QPCh. 7 - Prob. 20QPCh. 7 - Prob. 21QPCh. 7 - Option to Wait Hickock Mining is evaluating when...Ch. 7 - Abandonment Decisions Allied Products, Inc., is...Ch. 7 - Prob. 24QPCh. 7 - Scenario Analysis You are the financial analyst...Ch. 7 - Scenario Analysis Consider a project to supply...Ch. 7 - Sensitivity Analysis In Problem 26, suppose youre...Ch. 7 - Prob. 28QPCh. 7 - Prob. 29QPCh. 7 - Financial Break-Even The Cornchopper Company is...
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