PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Question
Chapter 11, Problem 20PS
a)
Summary Introduction
To determine: Competitive price of a utility meter at $5.
b)
Summary Introduction
To determine: Competitive price of a utility meter at $10.
c)
Summary Introduction
To determine: Competitive price of a utility meter at $15.
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Students have asked these similar questions
The Miramar Company is going to introduce one of three new products: a Widget, a Hummer, or a Nimnot. The market conditions (favourable, Stable, or unfavourable) will determine the profit or loss the company realizes, as shown In the following payoff table:
State of Nature
Favourable
Stable
Unfavourable
Product
0.2
0.7
0.1
$
$
$
Widget
120,000
70,000
-30,000
Hummer
60,000
40,000
20,000
Nimnot
35,000
30,000
30,000
Required:
1. Develop the opportunity loss table and compute the expected opportunity loss for each product.
2. Determine how much the firm would be willing to pay to a market research firm to gain better information about future market conditions.
The most likely outcomes for a particular project are estimated as follows:
Unit price
Variable cost
$
49
21
$309, 000
29, 200 uni ts per year
Fixed cost
Expected sales
However, you recognize that some of these estimates are subject to error. Suppose that each variable may turn out to be either 10%
higher or 10% lower than the initial estimate. The project will last for 13 years and requires an initial investment of $0.99 million, which
will be depreciated straight-line over the project life to a final value of zero. The firm's tax rate is 35% and the required rate of return is
17%. What is project NPV in the "best case" scenario, that is, assuming all variables take on the best possible value? (Round your
answer to the nearest whole dollar amount.)
NPV in the "best case" scenario
1961296
What about the "worst case" scenario? (Use the minus sign for negative values. Round your answer to the nearest whole dollar
amount.)
NPV in the "worst case" scenario
-148345
The most likely outcomes for a particular project are estimated as follows:
Unit price:
Variable cost:
Fixed cost:
Expected sales:
50
24
30
$370,000
36,000 units per year
However, you recognize that some of these estimates are subject to error. Suppose that each variable may turn out to be either 10%
higher or 10% lower than the initial estimate. The project will last for 10 years and requires an initial investment of $1.4 million, which will
be depreclated straight-line over the project life to a final value of zero. The firm's tax rate is 21% and the required rate of return is 14%.
(For all the requirements, a negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions. Do
not round intermediate calculations. Round your answer to the nearest dollar amount.)
a. What is project NPV in the best-case scenario, that is, assuming all variables take on the best possible value?
b. What is project NPV in the worst-case scenario?
Chapter 11 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 11 - Capital budgeting process True or false? a. The...Ch. 11 - Capital budgeting process Explain how each of the...Ch. 11 - Capital budgeting process Draw up an outline or...Ch. 11 - Prob. 4PSCh. 11 - Biased forecasts Look back to the cash flows for...Ch. 11 - Prob. 6PSCh. 11 - Prob. 7PSCh. 11 - Prob. 8PSCh. 11 - Market prices Suppose the current price of gold is...Ch. 11 - Prob. 10PS
Ch. 11 - Prob. 11PSCh. 11 - Prob. 12PSCh. 11 - Prob. 13PSCh. 11 - Economic rents True or false? a. A firm that earns...Ch. 11 - Prob. 16PSCh. 11 - Economic rents Thanks to acquisition of a key...Ch. 11 - Prob. 18PSCh. 11 - Prob. 19PSCh. 11 - Prob. 20PSCh. 11 - Prob. 21PSCh. 11 - Prob. 22PSCh. 11 - Economic rents Taxes are a cost, and, therefore,...Ch. 11 - Prob. 1MCCh. 11 - Libby Flannery, the regional manager of Ecsy-Cola,...
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