EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 11, Problem 8P
Summary Introduction
To determine: The project to be accepted by the company.
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Allied Biscuit Co. has to choose between two mutually exclusive projects. If it chooses project A, Allied Biscuit Co. will have the opportunity to make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 12%?
Cash Flow
Project A
Project B
Year 0:
–$17,500
Year 0:
–$45,000
Year 1:
10,000
Year 1:
10,000
Year 2:
16,000
Year 2:
17,000
Year 3:
15,000
Year 3:
16,000
Year 4:
15,000
Year 5:
14,000
Year 6:
13,000
A. $8,754
B. $12,506
C. $7,504
D. $10,630
E. $11,255
Allied Biscuit Co. is considering a three-year project that has a…
ABC Telecom has to choose between two mutually exclusive projects. If it chooses project A, ABC Telecom will have the opportunity to
make a similar investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment.
The following table lists the cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the
difference between the net present value (NPV) of project A and project B, assuming that both projects have a weighted average cost of
capital of 11%?
Project A
Year 0:
Year 1:
Year 2:
Year 3:
$9,351
O $15,585
$14,027
$13,247
O $11,689
$21,804
$23,881
Cash Flow
O $24,919
O $20,766
O $17,651
-$17,500
10,000
16,000
15,000
ABC Telecom is considering a three-year project that has a weighted average cost of capital of 12% and a NPV of $49,876. ABC Telecom
can replicate this project indefinitely. What is the equivalent annual annuity (EAA) for this project?
Project B
Year 0:
Year 1:
Year…
ABC Telecom has to choose between two mutually exclusive projects. If it chooses project A, ABC Telecom will have the opportunity to make a similar
investment in three years. However, if it chooses project B, it will not have the opportunity to make a second investment. The following table lists the
cash flows for these projects. If the firm uses the replacement chain (common life) approach, what will be the difference between the net present
value (NPV) of project A and project B, assuming that both projects have a weighted average cost of capital of 11%?
Project A
Year 0:
Year 1:
Year 2:
Year 3:
$11,217
$14,422
$13,620
$17,626
$16,024
$35,090
$28,987
$30,513
$36,616
Cash Flow
$38,141
-$12,500
8,000
14,000
13,000
ABC Telecom is considering a four-year project that has a weighted average cost of capital of 13% and a NPV of $90,760. ABC Telecom can replicate
this project indefinitely. What is the equivalent annual annuity (EAA) for this project?
Project B
Year 0:
Year 1:
Year 2:
Year 3:…
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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