EBK CONTEMPORARY ENGINEERING ECONOMICS
6th Edition
ISBN: 9780134123950
Author: Park
Publisher: PEARSON CUSTOM PUB.(CONSIGNMENT)
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Question
Chapter 7, Problem 3ST
(a):
To determine
Assumption.
(b):
To determine
Selection of the project.
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By outbidding its competitors, Turbo Image Processing (TIP), a defense contractor, has received a contract worth $7,300,000 to build navy flight simulators for U.S. Navy pilot training over two years. For some defense contracts, the U.S. government makes an advance payment when the contract is signed, but in this case, the government will make two progressive payments: $4,300,000 at the end of the first year and the $3.000,000 balance at the end of the second year. The expected cash outflows required in order to produce these simulators are estimated to be $1,000,000 now, $2.000,000 during the first year, and $4,320,000 during the second year. The expected net cash flows from this project are summarized as follows:
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CT Corp. is considering two mutually exclusive projects. Both require an initial investment of P120,000 at t = 0. Project X has an expected life of 2 years with after-tax cash inflows of P67,000 and P75,000 at the end of Years 1 and 2, respectively. In addition, Project X can be repeated at the end of Year 2 with no changes in its cash flows. Project Y has an expected life of 4 years with after-tax cash inflows of P38,500 at the end of each of the next 4 years. Each project has a WACC of 8%.
Listed below are the requirements for this data set:
Using the replacement chain approach, how much is the NPV of Project X? (Round the final answer to the nearest peso. Use the "NPV formula" in excel for exact computation. Otherwise, answer based on rounded pv factors will also be accepted.)
Which of the two projects will be more profitable considering the replacement chain approach on the NPV of Project X?
Using the equivalent annuity approach, what is the equivalent annuity of Project Y?…
Smith and Co. has to choose between two mutually exclusive projects. If it chooses project A, Smith and Co. will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 10%?
Cash Flow
Project A
Project B
Year 0:
–$17,500
Year 0:
–$40,000
Year 1:
10,000
Year 1:
8,000
Year 2:
16,000
Year 2:
16,000
Year 3:
15,000
Year 3:
15,000
Year 4:
12,000
Year 5:
11,000
Year 6:
10,000
$15,731
$11,012
$12,585
$9,439
$14,158
Smith and Co. is considering a three-year project that has a weighted average cost of capital…
Chapter 7 Solutions
EBK CONTEMPORARY ENGINEERING ECONOMICS
Ch. 7 - Prob. 1PCh. 7 - Prob. 2PCh. 7 - Prob. 3PCh. 7 - Prob. 4PCh. 7 - Prob. 5PCh. 7 - Prob. 6PCh. 7 - Prob. 7PCh. 7 - Prob. 8PCh. 7 - Prob. 9PCh. 7 - Prob. 10P
Ch. 7 - Prob. 11PCh. 7 - Prob. 12PCh. 7 - Prob. 13PCh. 7 - Prob. 14PCh. 7 - Consider an investment project with the cash flows...Ch. 7 - Consider the investment projects given in Table...Ch. 7 - Prob. 17PCh. 7 - Prob. 18PCh. 7 - Consider the investment projects given in Table...Ch. 7 - Consider the investment projects given in Table...Ch. 7 - Prob. 21PCh. 7 - Prob. 22PCh. 7 - Consider the investment projects given in Table...Ch. 7 - Prob. 24PCh. 7 - Prob. 25PCh. 7 - Prob. 26PCh. 7 - Prob. 27PCh. 7 - Prob. 28PCh. 7 - Prob. 29PCh. 7 - Prob. 30PCh. 7 - Prob. 31PCh. 7 - Prob. 32PCh. 7 - Prob. 33PCh. 7 - Prob. 34PCh. 7 - Prob. 35PCh. 7 - Prob. 36PCh. 7 - Prob. 37PCh. 7 - Prob. 38PCh. 7 - Prob. 39PCh. 7 - Prob. 40PCh. 7 - Prob. 41PCh. 7 - Prob. 42PCh. 7 - Consider the two mutually exclusive investment...Ch. 7 - You are considering two types of automobiles....Ch. 7 - Prob. 45PCh. 7 - Prob. 46PCh. 7 - Fulton National Hospital is reviewing ways of...Ch. 7 - Prob. 48PCh. 7 - Consider the investment projects given in Table...Ch. 7 - Prob. 50PCh. 7 - Prob. 51PCh. 7 - Prob. 52PCh. 7 - Prob. 53PCh. 7 - Prob. 54PCh. 7 - Prob. 55PCh. 7 - Prob. 56PCh. 7 - Prob. 57PCh. 7 - Prob. 1STCh. 7 - Prob. 2STCh. 7 - Prob. 3STCh. 7 - Prob. 4STCh. 7 - Prob. 5ST
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