Intermediate Financial Management (MindTap Course List)
12th Edition
ISBN: 9781285850030
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Question
Chapter 8, Problem 7MC
Summary Introduction
Case summary:
A mid-sized human resources management company considering the expansion plans including acquisition of Company T which is an employment agency supplies computer programmers and word processors to businesses. Company also considering the purchase of Company B (privately held company)
To determine: Percentage of value due to cash flows beyond year 4 and beyond.
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Assume that Anonas Company is planning to invest P4M in a new project which will provide net cash inflows of P1.5M in 2022, P1.4M in 2023, P1.3M in 2024, P1.2M in 2025 and P1.1M in 2026. The company uses 12% as cost of capital. If the IRR will be computed using Excel Formula, which computation will give the lowest rate? • IRR• XIRR• MIRR• Answer not given
Use the following information for problems 1 to 5. Assume that the projects are mutually exclusive.
Year
Cash Flow (A)
Cash Flow (B)
0
($525,600)
($425,600)
1
$323,100
$235,900
2
$180,200
$163,900
3
$145,000
$135,000
4
$88,220
$79,000
What is the IRR for each of these projects? Using the IRR decision rule, which project should the company accept? Is this decision necessarily correct?
If the required return is 13 percent, what is the NPV for each of these projects? Which project will the company choose if it applies the NPV decision rule?
Over what range of discount rates would the company choose Project A? Project B? At what discount rate would the company be indifferent between these two projects? Explain.
Compute the payback period for each project.
Compute the profitability index for each project.
PAR Ltd is considering an investment and has determined the following:
Expected net cash flows:
– Year 1
$65,967
– Year 2
$70,290
– Year 3
$135,391
– Year 4
$103,435
– Year 5
$100,998
Annual depreciation
$20,660
Period of investment
5 years
Initial investment
$611,246
Value at end of the investment period
$124,671
Calculate the Accounting Rate of Return. Express your answer in a percentage with 2 decimal places.
Chapter 8 Solutions
Intermediate Financial Management (MindTap Course List)
Ch. 8 - Define each of the following terms: a. Proxy;...Ch. 8 - Two investors are evaluating General Electric’s...Ch. 8 - A bond that pays interest forever and has no...Ch. 8 - Explain how to use the free cash flow valuation...Ch. 8 - Thress Industries just paid a dividend of 1.50 a...Ch. 8 - Prob. 2PCh. 8 - Prob. 3PCh. 8 - Prob. 4PCh. 8 - A company currently pays a dividend of $2 per...Ch. 8 - EMC Corporation has never paid a dividend. Its...
Ch. 8 - Prob. 7PCh. 8 - Prob. 8PCh. 8 - Constant Growth Valuation Crisp Cookwares common...Ch. 8 - Prob. 10PCh. 8 - Brushy Mountain Mining Companys coal reserves are...Ch. 8 - Prob. 12PCh. 8 - Nonconstant Growth Stock Valuation Simpkins...Ch. 8 - Prob. 14PCh. 8 - Return on Common Stock
You buy a share of The...Ch. 8 - Prob. 16PCh. 8 - Value of Operations
Kendra Enterprises has never...Ch. 8 - Free Cash Flow Valuation
Dozier Corporation is a...Ch. 8 - Prob. 19PCh. 8 - Prob. 20PCh. 8 - Prob. 1MCCh. 8 - Prob. 2MCCh. 8 - Prob. 3MCCh. 8 - Prob. 4MCCh. 8 - Use B&M’s data and the free cash flow valuation...Ch. 8 - Prob. 6MCCh. 8 - Prob. 7MCCh. 8 - Prob. 8MCCh. 8 - Prob. 9MCCh. 8 - Prob. 10MCCh. 8 - Prob. 11MCCh. 8 - Prob. 13MCCh. 8 - (1) Write out a formula that can be used to value...Ch. 8 - Assume that Temp Force has a beta coefficient of...Ch. 8 - Prob. 16MCCh. 8 - Now assume that the stock is currently selling at...Ch. 8 - Prob. 19MCCh. 8 - Prob. 20MCCh. 8 - Prob. 21MC
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