PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 10, Problem 26PS
Decision trees Look back at the Vegetron electric mop project in Section 9-4. Assume that if tests fail and Vegetron continues to go ahead with the project, the $1 million investment would generate only $75,000 a year. Display Vegetron’s problem as a decision tree.
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Waste Management Inc. is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price will increase with inflation. Fixed costs will also be constant, but variable costs will rise with inflation. The project should last for 3 years, and there will be no salvage value. This is just one project for the firm, so any losses can be used to offset gains on other firm projects. What is the project's expected NPV? IRR? Would you accept this project?
WACC
9.50%
Net investment cost (depreciable basis)
$100,000
Units sold
40,000
Average price per unit, Year 1
$25.00
Fixed op. cost excl. depr'n (constant)
$150,000
Variable op. cost/unit, Year 1
$20.20
Annual depreciation rate
33.33%
Expected inflation
5.00%
Tax rate
40.0%
Please show work.
The Ulrich Corporation is trying to choose between the following two mutually exclusive design projects. If the required rate of return is 10%, which of the following statements is correct?
(a) Select A2 because it has a higher PI.(b) Select A2 because it has a higher RO R. (c) Select Al because its incremental PI exceeds 1.(d) Not enough information to decide.
Adam Andler Corp is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with
inflation. The project should last for 3 years. This is just one of many projects for the firm, so any losses on this project can be used to offset gains on other firm projects. What is the project's expected NPV? Do not round the intermediate calculations
and round the final answer to the nearest whole number.
WACC or cost of capital
Net investment cost (depreciable basis)
The salvage value of its equipment
No other fixed assets will be acquired for following years
The company will require an increase in net working capital at the
$10,000
beginning
The company will liquidate all working capital at the end of the project -10,000
Units sold (constant through years)
60,000
$30.00
$50,000
$17.00
Average price per unit, Year 1
Fixed operating…
Chapter 10 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 10 - Terminology Match each of the following terms to...Ch. 10 - Project analysis True or false? a. Sensitivity...Ch. 10 - Sensitivity analysis Otobais staff (see Section...Ch. 10 - Prob. 4PSCh. 10 - Prob. 7PSCh. 10 - Scenario analysis What is the NPV of the electric...Ch. 10 - Prob. 9PSCh. 10 - Break-even analysis Break-even calculations are...Ch. 10 - Prob. 11PSCh. 10 - Prob. 12PS
Ch. 10 - Prob. 13PSCh. 10 - Break-even analysis A financial analyst has...Ch. 10 - Fixed and variable costs In a slow year, Deutsche...Ch. 10 - Operating leverage You estimate that your cattle...Ch. 10 - Prob. 17PSCh. 10 - Prob. 20PSCh. 10 - Real options Explain why options to expand or...Ch. 10 - Prob. 22PSCh. 10 - Real options True or false? a. Decision trees can...Ch. 10 - Prob. 24PSCh. 10 - Real options An auto plant that costs 100 million...Ch. 10 - Decision trees Look back at the Vegetron electric...Ch. 10 - Prob. 27PSCh. 10 - Prob. 28PSCh. 10 - Prob. 29PSCh. 10 - Prob. 32PS
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