Loose Leaf for Foundations of Financial Management Format: Loose-leaf
17th Edition
ISBN: 9781260464924
Author: BLOCK
Publisher: Mcgraw Hill Publishers
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Textbook Question
Chapter 12, Problem 10P
X-treme Vitamin Company is considering two investments, both of which cost
a. Which of the two projects should be chosen based on the payback method?
b. Which of the two projects should be chosen based on the
c. Should a firm normally have more confidence in answer a or answer b?
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Shaylee Corporation has $2.00 million to invest in new projects. The company's managers have presented a number of
possible options that the board must prioritize. Information about the projects follows:
Initial investment
Present value of future cash flows
Required:
1. Is Shaylee able to invest in all of these projects simultaneously?
2-a. Calculate the profitability index for each project.
2-b. What is Shaylee's order of preference based on the profitability index?
Complete this question by entering your answers in the tabs below.
Req 1
Project A
$ 435,000
785,000
Req 2A and 2B
Is Shaylee able to invest in all of these projects simultaneously?
Is Shaylee able to invest in all of these projects simultaneously?
Project C
$ 740,000
1,220,000
Project D
$ 965,000
1,580,000
Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows.
a. Campbell Manufacturing is considering the purchase of a new welding system. The cash benefits will be $480,000 per
year. The system costs $2,950,000 and will last 10 years.
b. Evee Cardenas is interested in investing in a women's specialty shop. The cost of the investment is $280,000. She
estimates that the return from owning her own shop will be $45,000 per year. She estimates that the shop will have
a useful life of 6 years.
c. Barker Company calculated the NPV of a project and found it to be $63,900. The project's life was estimated to be 8
years. The required rate of return used for the NPV calculation was 10%. The project was expected to produce
annual after-tax cash flows of $135,000.
Required:
1. Compute the NPV for Campbell Manufacturing, assuming a discount rate of 12%. If required, round all present value
calculations to the nearest dollar. Use the minus sign to indicate a…
A firm has two possible investment with the following cash inflows. Each investment cost $480, and the cost of capital is ten percent.
                  Cash Inflows
Year                  A               B
1Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $300Â Â Â Â Â Â Â Â Â Â Â Â $200
2Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 200Â Â Â Â Â Â Â Â Â Â Â Â Â 200
3Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 100Â Â Â Â Â Â Â Â Â Â Â Â Â 200
Â
a. Based only on visual inspection, which investment is to be preferred and why?
b. Based on each investment’s net present value, which investment(s) should the firm make?
c. Based on each investment’s internal rate of return, which investment(s) should the firm make? Is this the same answer you obtained in part b?
d. If the cost of capital were to increase to 14 percent, which investment(s) should the firm make?
Chapter 12 Solutions
Loose Leaf for Foundations of Financial Management Format: Loose-leaf
Ch. 12 - Prob. 1DQCh. 12 - Why does capital budgeting rely on analysis of...Ch. 12 - Prob. 3DQCh. 12 - Prob. 4DQCh. 12 - What does the term mutually exclusive investments...Ch. 12 - Prob. 6DQCh. 12 - If a corporation has projects that will earn more...Ch. 12 - What is the net present value profile? What three...Ch. 12 - How does an asset’s ADR (asset depreciation...Ch. 12 - Assume a corporation has earnings before...
Ch. 12 - Assume a corporation has earnings before...Ch. 12 - Assume a firm has earnings before depreciation and...Ch. 12 - Assume a firm has earnings before depreciation and...Ch. 12 - Al Quick, the president of a New York Stock...Ch. 12 - Prob. 6PCh. 12 - Prob. 7PCh. 12 - Assume a 90,000 investment and the following cash...Ch. 12 - Prob. 9PCh. 12 - X-treme Vitamin Company is considering two...Ch. 12 - You buy a new piece of equipment for 16,230, and...Ch. 12 - Prob. 12PCh. 12 - Home Security Systems is analyzing the purchase of...Ch. 12 - Aerospace Dynamics will invest 110,000 in a...Ch. 12 - The Horizon Company will invest 60,000 in a...Ch. 12 - Skyline Corp. will invest 130,000 in a project...Ch. 12 - The Hudson Corporation makes an investment of ...Ch. 12 - The Pan American Bottling Co. is considering the...Ch. 12 - You are asked to evaluate the following two...Ch. 12 - Turner Video will invest 76,344 in a project. The...Ch. 12 - The Suboptimal Glass Company uses a process of...Ch. 12 - Keller Construction is considering two new...Ch. 12 - Davis Chili Company is considering an investment...Ch. 12 - Telstar Communications is going to purchase an...Ch. 12 - Assume 65,000 is going to be invested in each of...Ch. 12 - The Summit Petroleum Corporation will purchase an...Ch. 12 - Oregon Forest Products will acquire new equipment...Ch. 12 - Universal Electronics is considering the purchase...Ch. 12 - Prob. 30PCh. 12 - Prob. 31PCh. 12 - Prob. 32PCh. 12 - Hercules Exercise Equipment Co. purchased a...Ch. 12 - Prob. 2WECh. 12 - Returning to TXN’s summary page, record the...
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