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 29QP
Replacement Decisions [LO2] Your small remodeling business has two work vehicles. One is a small passenger car used for job-site visits and for other general business purposes. The other is a heavy truck used to haul equipment. The car gets 25 miles per gallon (mpg). The truck gets 10 mpg. You want to improve gas mileage to save money, and you have enough money to upgrade one vehicle. The upgrade cost will be the same for both vehicles. An upgraded car will get 40 mpg; an upgraded truck will get 12.5 mpg. The cost of gasoline is $3.70 per gallon. Assuming an upgrade is a good idea in the first place, which one should you upgrade? Both vehicles are driven 12,000 miles per year.
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15.
Your small remodeling business has two work vehicles. One is a small passenger car used for job site visits and for other general business purposes. The other is a heavy truck used to haul equipment. The car gets 25 miles per gallon (mpg). The truck gets 10 mpg. You want to improve gas mileage to save money, and you have enough money to upgrade one vehicle. The upgrade cost will be the same for both vehicles. An upgraded car will get 40 mpg; an upgraded truck will get 12.5 mpg. The cost of gasoline is $2.65 per gallon.
Suppose you drive the truck 12,000 miles per year. How many miles would you have to drive the car before upgrading the car would be the better choice?
Number of miles:????????
16.
Your company has been approached to bid on a contract to sell 5,000 voice recognition (VR) computer keyboards per year for four years. Due to technological improvements, beyond that time they will be outdated and no sales will be possible. The…
Your small remodeling business has two work vehicles. One is a small passenger car
used for job-site visits and for other general business purposes. The other is a heavy
truck used to haul equipment. The car gets 25 miles per gallon (mpg). The truck gets 10
mpg. You want to improve gas mileage to save money, and you have enough money to
upgrade one vehicle. The upgrade cost will be the same for both vehicles. An upgraded
car will get 40 mpg; an upgraded truck will get 12.5 mpg. The cost of gasoline is $3.60
per gallon. Calculate the annual fuel savings, in gallons, for the truck and car assuming
both vehicles are driven 11,000 miles per year. (Round your answers to 2 decimal
places, e.g., 32.16.)
Truck
Car
Fuel savings
O Truck
O Car
gallons per year
gallons per year
Assuming an upgrade is a good idea in the first place, which one should you upgrade?
Both vehicles are driven 11,000 miles per year.
3.
You are currently without a vehicle and are considering buying either a new fuel efficient
Rabbit that costs $40.000 and gets 40 mpg or a used Suburban SUV (sport utility vehicle) that
costs $25,000 and gets 12 mpg. Next year you expect to take a new job in Tokyo which will
force you to sell your vehicle after one year. We will assume no maintenance costs on either
vehicle, but the Rabbit is expected to depreciate by $5000 and the SUV is expected to depreciate
by $2000. That is, one year from now you will be able to sell the Rabbit for $35.000 or you will
be able to sell the SUV for $23,000. (Note: we are assuming that new cars depreciate more
rapidly than used cars.) You have enough savings to pay cash for either vehicle, but the interest
rate you can earn on your savings is R=5%. You expect to drive 15,000 miles during the coming
year. We will assume that you are indifferent between the two vehicles. How high does the
price of gasoline have to be to make it cheaper to buy the…
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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