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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Chapter 10, Problem 21QP
Summary Introduction
To find: The project that must be selected by the firm
Introduction:
When the projects accept the one investment, it means that they reject the others that are the mutually exclusive projects. Even though the projects stand alone, they have good investments such as the positive
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QUESTION 7
Which of the following statements is correct?
a. When there are two mutually exclusive projects, the project with the highest NPV should be chosen.
D. The payback period criterion properly considers the time value of money.
OC. The IRR method correctly ranks mutually exclusive projects.
d. Since investors prefer more return and less risk, one will never hold a dominated asset in the risk-return sense. In other words, if asset A has a higher
expected return and lower standard-deviation than asset B, then investors would only hold asset A in their optimal portfolio.
e. When an investment project is evaluated today, the spending that occurred in the last year has to be included in the NPV analysis.
In theory, the arbitrage opportunity does not exist. However, with the new technologies and increased globalization, could arbitrage opportunity exist in some new ways?
LO3
Explain how to set a bid price for a project.
LO4
Evaluate the equivalent annual cost of a project.
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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Similar questions
- LO2 Evaluate whether a project is acceptable.arrow_forwardthe market? 10.6 Semistrong Efficiency If a market is semistrong form efficient, is it also weak form efficient? Explain. 10.7 Efficient Markets Hypothesis What are the implications of the efficientarrow_forward10. The phenomenon called "multiple internal rates of return" arises when two or more mutually exclusive projects that have different lives are being compared. Group of answer choices True Falsearrow_forward
- which one is correct please confirm? Q2" Which of the following strategies will be profitable if the price of the underlying asset is expected to decrease? (There may be more than one correct response.) Buying a put Buying a call. Selling a put Selling a call.arrow_forwardWhich project has no rate of return?arrow_forwardA Moving to another question will save this response. Quèstion 5 When evaluating mutually exclusive projects with different lives and different levels of risk, which of the following methods should NOT be used? O None of the listed choices can be used in the evaluation. O Replacement chain O Infinite replacement O Each of the listed choices can be used in the evaluation. O NPV A Moving to another question will save this response. MacBook Air 20 13 esc FS - FO F2 F4 $ & * 2 3 5 6 7 Q R Y U A S D. G K C V B olt plion command FI 2Narrow_forward
- Are there conditions under which a firm might be better off if it were to choose a machine with a rapid traditional payback period, PB, rather than one with a larger NPV? Explain.arrow_forwardQuestion 10 2 pts Which of the following statements is (or are) true? [Select all correct responses.] O For a borrowing (or "delayed investment" project), the internal rate of return (IRR) decision rule states that if the IRR exceeds the benchmark rate, accept the project. O For an investment, the IRR decision rule states that if the IRR exceeds the benchmark rate, accept the project. O NPV should never be used if the project under consideration has nonconventional cash flows. D A decision maker who is considering several mutually exclusive investment opportunities should use IRR to choose the best one among them. O The payback investment rule might not use all possible cash flows in its calculation. O In some instances, for example for mutually exclusive investments, the NPV rule is not as conceptually legitimate as is the payback rule. Practitioners generally prefer the payback decision criterion to the IRR because payback considers the time value of money while IRR does not. The…arrow_forwardSuppose that a firm must choose between two mutually exclusive projects, both of which have negative NPVs. Explain how a firm can legitimately choose between two such projects.arrow_forward
- Why are custom systems more expensive than commercial systems?arrow_forwardHow would you rank the following alternative risky investment projects? Explain your answer carefully. Project L Payoff Probability Payoff Probability Payoff Probability Project K Project M 4 0.25 1 0.4 1 0.5 5 0.5 6. 0.3 6. 0.25 12 0.25 8. 0.3 8. 0.25arrow_forwardThe option to develop follow-on projects, expand markets, expand or retool plants, and so on that would not be possible without implementation of the project that is being evaluated is called a ________. flexibility option growth option timing option abandonment optionarrow_forward
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