Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Textbook Question
Chapter 10, Problem 16SP
(MIRR calculation) Calculate the MIRR given the following
Should the project be accepted?
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Using a MARR of 12%, find the external rate of return (ERR) for the following cash flow. Is this project economically attractive?
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Calculate the payback period, net present value, and internal rate of return for Project A. Assume a discount rate of 10%. Should the firm accept or reject Project A? Explain. If Project A and Project B are mutually exclusive, which is the better choice? Explain. What are “non-conventional” cash flows? What issues arise when evaluating projects with “non-conventional” cash flows?
Project A
Project B
Year
Cash Flow
Year
Cash Flow
0
-$100,000
0
-$1
1
$70,000
1
$0
2
$0
2
$0
3
$50,000
3
$10
Chapter 10 Solutions
Foundations Of Finance
Ch. 10 - Why is capital budgeting such an important...Ch. 10 - What are the disadvantages of using the payback...Ch. 10 - Prob. 4RQCh. 10 - What are mutually exclusive projects? Why might...Ch. 10 - Prob. 6RQCh. 10 - When might two mutually exclusive projects having...Ch. 10 - Prob. 1SPCh. 10 - Prob. 2SPCh. 10 - Prob. 3SPCh. 10 - Prob. 4SP
Ch. 10 - (NPV, PI, and IRR calculations) Fijisawa Inc. is...Ch. 10 - (Payback period, NPV, PI, and IRR calculations)...Ch. 10 - (NPV, PI, and IRR calculations) You are...Ch. 10 - (Payback period calculations) You are considering...Ch. 10 - (NPV with varying required rates of return)...Ch. 10 - Prob. 10SPCh. 10 - (NPV with varying required rates of return) Big...Ch. 10 - (NPV with different required rates of return)...Ch. 10 - (IRR with uneven cash flows) The Tiffin Barker...Ch. 10 - (NPV calculation) Calculate the NPV given the...Ch. 10 - (NPV calculation) Calculate the NPV given the...Ch. 10 - (MIRR calculation) Calculate the MIRR given the...Ch. 10 - (PI calculation) Calculate the PI given the...Ch. 10 - (Discounted payback period) Gios Restaurants is...Ch. 10 - (Discounted payback period) You are considering a...Ch. 10 - (Discounted payback period) Assuming an...Ch. 10 - (IRR) Jella Cosmetics is considering a project...Ch. 10 - (IRR) Your investment advisor has offered you an...Ch. 10 - (IRR, payback, and calculating a missing cash...Ch. 10 - (Discounted payback period) Sheinhardt Wig Company...Ch. 10 - (IRR of uneven cash-flow stream) Microwave Oven...Ch. 10 - (MIRR) Dunder Mifflin Paper Company is considering...Ch. 10 - (MIRR calculation) Arties Wrestling Stuff is...Ch. 10 - (Capital rationing) The Cowboy Hat Company of...Ch. 10 - Prob. 29SPCh. 10 - (Size-disparity problem) The D. Dorner Farms...Ch. 10 - (Replacement chains) Destination Hotels currently...Ch. 10 - Prob. 32SPCh. 10 - Prob. 33SPCh. 10 - Why is the capital-budgeting process so important?Ch. 10 - Prob. 2MCCh. 10 - What is the payback period on each project? If...Ch. 10 - What are the criticisms of the payback period?Ch. 10 - Prob. 5MCCh. 10 - Prob. 6MCCh. 10 - Prob. 7MCCh. 10 - Prob. 8MCCh. 10 - Prob. 9MCCh. 10 - Determine the IRR for each project. Should either...Ch. 10 - How does a change in the required rate of return...Ch. 10 - Caledonia is considering two investments with...
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- 1. Which of the following is not true? Group of answer choices The method in which we calculate a project’s Internal Rate of Return (IRR) is called the Discounted Cash Flow approach. The Payback period can be calculated using the discounted (present) values of future cash inflows. The Payback period calculated using this method is what's called the Discounted Payback Period. The Net Present Value is calculated using the present value of the investments and future cash inflows. None of the above (all of the above are correct)arrow_forwarda). When ε= 15% and MARR = 20% per year, determine whether the project (whose total cash flow diagram is shown below) is acceptable using ERR b). What is the IRR of the project ?arrow_forwardCalculate the cash flows for each year. Based on these cash flows and the average project cost of capital, what are the projects NPV, IRR, MIRR, PI, payback, and discounted payback? Do these indicators suggest that the project should be undertaken?arrow_forward
- Calculate the project cash flows for each year. Based on these cash flows and the average project cost of capital, what are the projects NPV, IRR, MIRR, PI, payback, and discounted payback? Do these indicators suggest that the project should be undertaken?arrow_forwardIf the cash flows for Project M are C0 = -1,000; C1 = +800; C2 = +700 and C3= -200. Calculate the IRR for the project. For what range of discount rates does the project have a positive NPV?arrow_forward2.When comparing two projects with different lives, why do you compute an annuity with an equivalent present value (PV) to the net present value (NPV)? A. so that you can see which project has the greatest net present value (NPV) B. to reduce the danger that changes in the estimate of the discount rate will lead to choosing the project with a shorter timeframe C. to ensure that cash flows from the project with a longer life that occur after the project with the shorter life has ended are considered D. so that the projects can be compared on their cost or value created per yeararrow_forward
- Consider the following cash flow profile and assume MARR is 10%/yr. Solve, a. What does Descartes’ rule of signs tell us about the IRR(s) of this project? b. What does Norstrom’s criterion tell us about the IRR(s) of this project? c. Determine the IRR(s) for this project. d. Is this project economically attractive?arrow_forwardYou are given the following cash flow information for a project. Given this information, and assuming that the correct risk-adjusted discount rate (WACC) to use is 14 percent, while the firm's true reinvestment rate is 23 percent, determine the modified net present value (MNPV) for this project. Year 0 1 2 3 4 5 O $20,408 O $22,162 O $21.277 $21,728 O$20,883 Cash Flow -$20,000.00 $16,000.00 $10,000.00 $15,000.00 $16,000.00 $17,000.00arrow_forwardWhat is the cash payback period for this proposal? What is the annual rate of return for the investment? What is the net present value of the investment?arrow_forward
- Consider two investments with the following sequences of cash flows: (a) Compute the IRR for each investment.(b) At MARR = 10%, determine the acceptability of each project.(c) If A and B are mutually exclusive projects, which project would you selecton the basis of the rate of return on incremental investment?arrow_forwarda. What are the project’s annual net cash inflows? b. What is the present value of the project’s annual net cash inflows? (Round your final answer to the nearest whole dollar amount.) c. What is the project’s net present value? (Round final answer to the nearest whole dollar amount.) d. What is the profitability index for this project? (Round your answer to 2 decimal places.) e. What is the project’s internal rate of return? (Round your answer to nearest whole percent.)arrow_forwardAll parts are under one question therefore per your policy all can be answered. 7. The NPV and payback period What information does the payback period provide? Suppose you are evaluating a project with the expected future cash inflows shown in the following table. Your boss has asked you to calculate the project’s net present value (NPV). You don’t know the project’s initial cost, but you do know the project’s regular, or conventional, payback period is 2.50 years. Year Cash Flow Year 1 $375,000 Year 2 $425,000 Year 3 $500,000 Year 4 $400,000 A. If the project’s weighted average cost of capital (WACC) is 9%, the project’s NPV (rounded to the nearest dollar) is: $353,334 $305,152 $273,031 $321,213 B. Which of the following statements indicate a disadvantage of using the regular payback period (not the discounted payback period) for capital budgeting decisions? Check all that apply. The payback period does not…arrow_forward
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