PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 12, Problem 22PS
EVA Ohio Building Products (OBP) is considering the launch of a new product that would
require an initial investment in equipment of $30,800 (no investment in working capital is
required). The
No cash flows are forecast after year 2, and the equipment wi ll have no salvage value. The
cost of capital is 10%.
a. What is the project's
b. Calculate the expected EVA and the
c. Why does EVA decline between years 1 and 2, whereas the return on investment is
unchanged?
d. Calculate the present value of the economic value added. How does this figure compare
with the project NPV?
e. What would be the return on investment and EVA if OBP chooses instead to depreciate
the investment straight line? Do you think that this would provide a better standard for
measuring subsequent performance?
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Chapter 12 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 12 - Terminology Define the following: a. Agency costs...Ch. 12 - Prob. 2PSCh. 12 - Prob. 3PSCh. 12 - Prob. 4PSCh. 12 - Prob. 5PSCh. 12 - Prob. 6PSCh. 12 - Management compensation We noted that management...Ch. 12 - Prob. 8PSCh. 12 - Prob. 9PSCh. 12 - Prob. 10PS
Ch. 12 - Prob. 11PSCh. 12 - Economic income Fill in the blanks: A projects...Ch. 12 - Economic income Consider the following project:...Ch. 12 - Accounting measures of performance Use the Beyond...Ch. 12 - Accounting measures of performance The Modern...Ch. 12 - Prob. 17PSCh. 12 - EVA Here are several questions about economic...Ch. 12 - EVA Herbal Resources is a small but profitable...Ch. 12 - Prob. 20PSCh. 12 - EVA Use the Beyond the Page feature to access the...Ch. 12 - EVA Ohio Building Products (OBP) is considering...
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