Financial Management: Theory & Practice
16th Edition
ISBN: 9781337909730
Author: Brigham
Publisher: Cengage
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Chapter 10, Problem 12MC
You are also considering another project that has a physical life of 3 years—that is, the machinery will be totally worn out after 3 years. However, if the project were terminated prior to the end of 3 years, the machinery would have a positive salvage value. Here are the project’s estimated cash flows:
Using the 10% cost of capital, what is the project’s
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You are asked to evaluate a project proposal for Edmonton Plaza. The equipment that would be used would have a constant
annual capital cost allowance over the project's 3-year life and a zero salvage value. This project would require some
additional working capital that would be recovered at the end of the project's life. Revenues and cash operating costs are
expected to be constant over the project's 3-year life. What is the project's NPV? This question is worth 15% of your
grade.
WACC
10.0%
Net investment in fixed assets (basis)
65,000
Required new working capital
10,000
Annual capital cost allowance
21,665
Sales revenues, each year
70,000
Cash operating costs, each year
25,000
Tax rate
35.0%
O a. 26,584
O b. 28,913
O c. 24,111
O d. 22,318
Diamond Company is considering purchasing a machine that would cost $756,000 and have a useful life of 8 years. The machine would reduce cash operating costs by $132,632 per year. The machine would have a salvage value of $151,200 at the end of the project.
Compute:
Net present value
Internal rate of return
Profitability index
Payback period
Simple rate of return
Should the company purchase the machine? Why or why not?
Glenora Inc. is considering the following project: The
equipment has a 4-year project life. This equipment fall
into class 43 with a CCA rate of 30% and would have
zero salvage value. The firm has other assets in asset
class 43. No new working capital would be required.
Revenues and cash operating costs are expected to be
constant over the project's 4-year life. What is the
project's NPV?
WACC
Net investment cost
Sales revenues, each year
Cash operating costs
Tax rate
Oa. $16,284
O b. $23,401
O c. $28,499
d. $19,417
10.0%
$65,000
$60,000
$25,000
35.0%
Chapter 10 Solutions
Financial Management: Theory & Practice
Ch. 10 - Define each of the following terms:
Capital...Ch. 10 - What types of projects require the least detailed...Ch. 10 - Explain why the NPV of a relatively long-term...Ch. 10 - When two mutually exclusive projects are being...Ch. 10 - Suppose a firm is considering two mutually...Ch. 10 - A project has an initial cost of 40,000, expected...Ch. 10 - Refer to Problem 10-1. What is the project’s IRR?
Ch. 10 - Refer to Problem 10-1. What is the projects MIRR?Ch. 10 - Prob. 4PCh. 10 - Prob. 5P
Ch. 10 - Prob. 6PCh. 10 - Your division is considering two investment...Ch. 10 - Edelman Engineering is considering including two...Ch. 10 - Davis Industries must choose between a gas-powered...Ch. 10 - Project S has a cost of 10,000 and is expected to...Ch. 10 - Your company is considering two mutually exclusive...Ch. 10 - Prob. 12PCh. 10 - Cummings Products is considering two mutually...Ch. 10 - Prob. 14PCh. 10 - Prob. 15PCh. 10 - Shao Airlines is considering the purchase of two...Ch. 10 - The Perez Company has the opportunity to invest in...Ch. 10 - Filkins Fabric Company is considering the...Ch. 10 - Prob. 19PCh. 10 - The Aubey Coffee Company is evaluating the...Ch. 10 - Your division is considering two investment...Ch. 10 - Prob. 22PCh. 10 - Start with the partial model in the file Ch10 P23...Ch. 10 - What is capital budgeting?Ch. 10 - Prob. 2MCCh. 10 - c. (1) Define the term net present value (NPV)....Ch. 10 - Prob. 4MCCh. 10 - Draw NPV profiles for Franchises L and S. At what...Ch. 10 - What is the underlying cause of ranking conflicts...Ch. 10 - Define the term modified IRR (MIRR). Find the...Ch. 10 - What does the profitability index (PI) measure?...Ch. 10 - (1) What is the payback period? Find the paybacks...Ch. 10 - Prob. 10MCCh. 10 - In an unrelated analysis, you have the opportunity...Ch. 10 - You are also considering another project that has...
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