Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 10, Problem 13QP
Project Evaluation [LO1] Dog Up! Franks is looking at a new sausage system with an installed cost of $540,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sausage system can be scrapped for $80,000. The sausage system will save the firm $170,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $29,000. If the tax rate is 34 percent and the discount rate is 10 percent, what is the
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14. Project Evaluation Kolby's Korndogs is looking at a new sausage system
with an installed cost of $655,000. This cost will be depreciated straight-
line to zero over the project's five-year life, at the end of which the sausage
system can be scrapped for $85,000. The sausage system will save the firm
$183,000 per year in pretax operating costs, and the system requires an initial
investment in net working capital of $35,000. If the tax rate is 22 percent and
the discount rate is 8 percent, what is the NPV of this project?
LO 2
qunnore the fixed
Exercise 5
Dog Up! Franks is looking at a new sausage system with an installed cost of $445,000. This cost will be
depreciated straight-line to zero over the project's five-year life, at the end of which the sausage system can
be scrapped for $53,000. The sausage system will save the firm $139,000 per year in pretax operating costs,
and the system requires an initial investment in net working capital of $25,000. If the tax rate is 23 percent
and the discount rate is 11 percent, what is the NPV of this project?
Answer
13. Project Analysis You are considering a new product launch. The project will cost $1.675 million, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 195 units per year; price per unit will be $16,300; variable cost per unit will be $9,400; and fixed costs will be $550,000 per year. The required return on the proiect is 12 percent and the relevant tax rate is 21 percent. a. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within #10 percent. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the best-case and worst-case scenarios? b. Evaluate the sensitivity of your base-case NPV to changes in fixed costs. c. What is the accounting break-even level of output for this project? use excel to solve this
Chapter 10 Solutions
Fundamentals of Corporate Finance
Ch. 10.1 - What are the relevant incremental cash flows for...Ch. 10.1 - What is the stand-alone principle?Ch. 10.2 - Prob. 10.2ACQCh. 10.2 - Prob. 10.2BCQCh. 10.2 - Explain why interest paid is not a relevant cash...Ch. 10.3 - What is the definition of project operating cash...Ch. 10.3 - For the shark attractant project, why did we add...Ch. 10.4 - Prob. 10.4ACQCh. 10.4 - How is depreciation calculated for fixed assets...Ch. 10.5 - Prob. 10.5ACQ
Ch. 10.5 - Prob. 10.5BCQCh. 10.6 - Prob. 10.6ACQCh. 10.6 - Under what circumstances do we have to worry about...Ch. 10 - Prob. 10.1CTFCh. 10 - What should NOT be included as an incremental cash...Ch. 10 - Prob. 10.3CTFCh. 10 - An asset costs 24,000 and is classified as...Ch. 10 - Prob. 10.5CTFCh. 10 - Prob. 10.6CTFCh. 10 - Opportunity Cost [LO1] In the context of capital...Ch. 10 - Depreciation [LO1] Given the choice, would a firm...Ch. 10 - Net Working Capital [LO1] In our capital budgeting...Ch. 10 - Stand-Alone Principle [LO1] Suppose a financial...Ch. 10 - Prob. 5CRCTCh. 10 - Cash Flow and Depreciation [LOI] When evaluating...Ch. 10 - Capital Budgeting Considerations [LOI] A major...Ch. 10 - Prob. 8CRCTCh. 10 - Prob. 9CRCTCh. 10 - Prob. 10CRCTCh. 10 - Relevant Cash Flows [LO1] Parker Slone, Inc., is...Ch. 10 - Prob. 2QPCh. 10 - Calculating Projected Net Income [LO1] A proposed...Ch. 10 - Calculating OCF [LO1] Consider the following...Ch. 10 - OCF from Several Approaches [LO1] A proposed new...Ch. 10 - Calculating Depreciation [LO1] A piece of newly...Ch. 10 - Calculating Salvage Value [LO1] Consider an asset...Ch. 10 - Calculating Salvage Value [LO1] An asset used in a...Ch. 10 - Calculating Project OCF [LO1] Quad Enterprises is...Ch. 10 - Calculating Project NPV [LO1] In the previous...Ch. 10 - Prob. 11QPCh. 10 - NPV and Modified ACRS [LO1] In the previous...Ch. 10 - Project Evaluation [LO1] Dog Up! Franks is looking...Ch. 10 - Project Evaluation [LO1] Your firm is...Ch. 10 - Prob. 15QPCh. 10 - Calculating EAC [LO4] A five-year project has an...Ch. 10 - Calculating EAC [LO4] You are evaluating two...Ch. 10 - Calculating a Bid Price [LO3] Romo Enterprises...Ch. 10 - Cost-Cutting Proposals [LO2] Warmack Machine Shop...Ch. 10 - Comparing Mutually Exclusive Projects [LO1] Lang...Ch. 10 - Prob. 21QPCh. 10 - Prob. 22QPCh. 10 - Prob. 23QPCh. 10 - Comparing Mutually Exclusive Projects [LO4]...Ch. 10 - Equivalent Annual Cost [LO4] Compact fluorescent...Ch. 10 - Break-Even Cost [LO2] The previous problem...Ch. 10 - Break-Even Replacement [LO2] The previous two...Ch. 10 - Issues in Capital Budgeting [LO1] The debate...Ch. 10 - Replacement Decisions [LO2] Your small remodeling...Ch. 10 - Replacement Decisions [LO2] In the previous...Ch. 10 - Calculating Project NPV [LO1] You have been hired...Ch. 10 - Prob. 32QPCh. 10 - Calculating Required Savings [LO2] A proposed...Ch. 10 - Prob. 34QPCh. 10 - Calculating a Bid Price [LO3] Your company has...Ch. 10 - Replacement Decisions [LO2] Suppose we are...Ch. 10 - Conch Republic Electronics, Part 1 Conch Republic...Ch. 10 - Conch Republic Electronics, Part 1 Conch Republic...Ch. 10 - Conch Republic Electronics, Part 1 Conch Republic...Ch. 10 - Conch Republic Electronics, Part 1 Conch Republic...
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