EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 11, Problem 23P
Summary Introduction
To determine: The probability that the year 1 net cash flows will be negative.
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RiverRocks, Inc., is considering a project with the following projected free cash flows:
Year
0
Cash Flow
- $50.1
(in millions)
A. Cash Flows (millions) - $50.1
The timeline for the project's cash flows is: (Select the best choice below.)
Year
B. Cash Flows (millions)
The firm believes that, given the risk of this project, the WACC method is the appropriate approach to valuing the project. RiverRocks' WACC is 12.5%. Should it take on this project? Why or
why not?
Year
C. Cash Flows (millions)
Year
D. Cash Flows (millions)
Year
0
$50.1
0
- $50.1
0
$50.1
0
- $9.8
1
$9.8
1
$9.8
1
1
$9.8
- $9.8
1
- $20.9
2
$20.9
2
$20.9
2
2
$20.9
- $20.9
+2
- $19.3
3
$19.3
3
$19.3
3
- $19.3
3
$19.3
3
- $14.7
4
$14.7
4
$14.7
4
- $14.7
4
$14.7
4
Rockmont Recreation Inc. is considering a project that has the following cash flow
and WACC data. What is the project's IRR? Note that a project's projected IRR can
be less than the WACC, in which case it will be rejected. WACC-10%, Cash Flow
Year 0 -1000, Cash Flow Year 1 = $450, Cash Flow Year 2 = $440, Cash Flow Year 3
= $430.
15.41%
15.55%
15.76%
16.13%
The management of Leitheiser Corporation is considering a project that would require an initial investment of $53,000. No other cash outflows would be required. The present value of the cash inflows would be $79,580. The profitability index of the project is closest to (Ignore income taxes.):
Chapter 11 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Ch. 11 - Prob. 1QTDCh. 11 - Prob. 2QTDCh. 11 - Prob. 3QTDCh. 11 - Prob. 4QTDCh. 11 - Prob. 5QTDCh. 11 - Prob. 6QTDCh. 11 - Prob. 7QTDCh. 11 - Prob. 8QTDCh. 11 - Prob. 9QTDCh. 11 - Prob. 10QTD
Ch. 11 - Prob. 1PCh. 11 - Prob. 2PCh. 11 - Prob. 3PCh. 11 - Prob. 4PCh. 11 - Prob. 5PCh. 11 - Prob. 6PCh. 11 - Prob. 7PCh. 11 - Prob. 8PCh. 11 - Prob. 9PCh. 11 - Prob. 10PCh. 11 - Prob. 11PCh. 11 - Prob. 12PCh. 11 - Prob. 13PCh. 11 - Prob. 14PCh. 11 - Prob. 15PCh. 11 - Prob. 16PCh. 11 - Prob. 17PCh. 11 - Prob. 18PCh. 11 - Prob. 19PCh. 11 - Prob. 20PCh. 11 - Prob. 21PCh. 11 - Prob. 22PCh. 11 - Prob. 23PCh. 11 - Prob. 24PCh. 11 - Prob. 25PCh. 11 - Prob. 26PCh. 11 - Prob. 28PCh. 11 - Prob. 29P
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