Fundamentals of Corporate Finance, 9th edition
9th Edition
ISBN: 9781260151756
Author: Richard Brealey
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 8, Problem 1QP
IRR/NPV. If the opportunity cost of capital is 11%. Which of these projects is worth pursuing?
Expert Solution & Answer
Summary Introduction
To find: The project that is worth pursuing if the opportunity cost of capital is 11%.
Explanation of Solution
Computation of the project that is worth continuing:
Thus both the projects are worth pursuing as they are with a positive net present value.
Excel calculations:
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A project Alpha requires an initial capital outlay of $300,000. Its profitability index is 0.18 . What is the NPV of the project? Answer:
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Chapter 8 Solutions
Fundamentals of Corporate Finance, 9th edition
Ch. 8 - IRR/NPV. If the opportunity cost of capital is...Ch. 8 - Prob. 2QPCh. 8 - Prob. 3QPCh. 8 - Prob. 4QPCh. 8 - Prob. 5QPCh. 8 - Prob. 6QPCh. 8 - Prob. 7QPCh. 8 - Prob. 8QPCh. 8 - Prob. 9QPCh. 8 - Prob. 10QP
Ch. 8 - Prob. 11QPCh. 8 - NPV/IRR. A new computer system will require an...Ch. 8 - Prob. 13QPCh. 8 - Prob. 15QPCh. 8 - Prob. 16QPCh. 8 - Prob. 17QPCh. 8 - Prob. 18QPCh. 8 - Prob. 19QPCh. 8 - Prob. 20QPCh. 8 - Prob. 21QPCh. 8 - Prob. 22QPCh. 8 - Prob. 23QPCh. 8 - Prob. 24QPCh. 8 - Prob. 25QPCh. 8 - Prob. 26QPCh. 8 - Prob. 27QPCh. 8 - Prob. 28QPCh. 8 - Prob. 29QPCh. 8 - Prob. 31QPCh. 8 - Prob. 32QPCh. 8 - Prob. 33QPCh. 8 - Prob. 34QPCh. 8 - Prob. 35QPCh. 8 - Prob. 36QPCh. 8 - Prob. 37QPCh. 8 - Prob. 38QP
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- Suppose a firm estimates its overall cost of capital for the coming year to be 10%. What might be reasonable costs of capital for average-risk, high-risk, and low-risk projects?arrow_forwardAn investment project has an initial cost of $260 and cash flows $75, $105, $100, and $50 for years 1 to 4 respectively. The cost of capital is 12%. What is the discounted payback period?arrow_forwardFind the net present value (NPV) and profitability index (PI) of a project that costs $1,500 and returns $800 in year one and $850 in year two. Assume the project’s cost of capital is 8 percent.arrow_forward
- Compute the PI statistic for Project Z if the appropriate cost of capital is 6 percent. Project Z Cash flow: –$3,300 $730 $860 $1,030 $680 $480arrow_forwardJudson's cost of capital is 12%, what is the DISCOUNTED Payback Period for the project? Year Cash Flow in $ 0 ($1000) 1 400 2 400 3 600arrow_forwardA project has an investment cost of $200,000 and a profitability index of 1.6. What is the net present value of the project? NPV=arrow_forward
- The cashflow of a project in Year 0, 1, 2, and 3 are -$200, $100, $100, $100. If opportunity cost of capital is 10%. Its profitability index is a. 0.20 b. 0.26 c. 0.24 d. 0.22arrow_forwardCompute the NPV statistic for Project U given the following cash flows if the appropriate cost of capital is 9 percent. Project U Time 0 1 2 3 4 5 Cash Flow –$ 1,000 $ 350 $ 1,480 –$ 520 $ 400 –$ 100arrow_forwardWhich of the following comes closest to the net present value (NPV) of a project whose initial investment is $5 and which produces two cash flows: the first at the end of year 2 of $3 and the second at the end of year 4 of $7? The required rate of return is 13%? Select one: a. $1.84 b. $0 c. $1.64 d. $2.05 e. $2.26arrow_forward
- What is the net present value of a capital investment project that has the followingaftertax cash flows for a company that requires a 15% rate of return on the project?Time Cash Flow0 -$4,0001 5002 2,0003 5,000arrow_forwardJudson's cost of capital is 12%, what is the project's NPV? Year Cash Flow in $ 0 ($1000) 1 400 2 400 3 600arrow_forwardIf a $300,000 investment has a project profitability index of 0.25, what is the netpresent value of the project?a. $75,000b. $225,000c. $25,000d. $275,000arrow_forward
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