Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 19, Problem 4P
Summary Introduction
To determine: The net income from 2005 to 2010.
Introduction:
A financial model is used to project the cash flows from an investment. The financial models are pro forma income statement, working capital needs and capital expenditure, balance sheet, and statement of cash flows.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
ANB has a project with $185211 in depreciation expense each year, no changes in net working capital each year, and initial capital expenditures of $461696. The project is expected to last for two years. If the discount rate is 0.080, what constant level of unlevered net income results in a NPV of 0 for this project?
Estimate the approximate after-tax rate of return (ROR) for a project that has a before-tax ROR of 28%. Assume the company has Te = 37% and it uses 5-year MACRS depreciation for project assets.
Find the modified internal rate of return (MIRR) for a proposed project costing $5,489. Assume that the appropriate cost of capital for projects of this risk level, at this company is 11.46%, and the estimated cash flows for the life of the project are found in the table below. (If you calculate an MIRR of 20.22%, please enter 20.22 - do not include the % symbol, and use at least two decimal places).
Year 1
Year 2
Year 3
Year 4
Year 5
$6,100
$10,836
$9,527.1
$13,000
$7,285
Chapter 19 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 19.1 - Prob. 1CCCh. 19.1 - Prob. 2CCCh. 19.2 - Prob. 1CCCh. 19.2 - Prob. 2CCCh. 19.3 - What is a pro forma income statement?Ch. 19.3 - Prob. 2CCCh. 19.4 - Prob. 1CCCh. 19.4 - Prob. 2CCCh. 19.5 - Prob. 1CCCh. 19.5 - Prob. 2CC
Ch. 19.6 - Prob. 1CCCh. 19.6 - Prob. 2CCCh. 19 - Prob. 1PCh. 19 - Prob. 2PCh. 19 - Prob. 3PCh. 19 - Prob. 4PCh. 19 - Under the assumptions that Idekos market share...Ch. 19 - Prob. 6PCh. 19 - Prob. 7PCh. 19 - Prob. 8PCh. 19 - Prob. 11PCh. 19 - Calculate Idekos unlevered cost of capital when...Ch. 19 - Using the information produced in the income...Ch. 19 - How does the assumption on future improvements in...Ch. 19 - Approximately what expected future long-run growth...Ch. 19 - Prob. 16P
Knowledge Booster
Similar questions
- You are given the following data for a project that is to be evaluated using the APV method. Year EBIT CAPEX Depreciation Increase in NWC Year-end net debt $80,000 O $201.765 O $185,617 O $193,822 0 O$222,872 Cost of net debt-8% Unlevered cost of capital = 11.8% Corporate tax rate = 30% Calculate the total value of the project at t = 0, using the APV method. O $213,918 1 $127,000 $60,000 $72,000 $50,000 $100,000 2 $133,000 $40,000 $80,000 $60,000 $140,000 3 $138,500 $10,000 $84,000 $30,000 $140,000arrow_forwardCalculate the:Net Present Value (NPV) of the investment and comment on the viability of the investment project. The annual incremental profits/ (losses) relating to the investment are estimated as follows: Years CF’s (000) Year 0 -175,000 Year 1 K11,000 Year 2 K3,000 Year 3 K34,000 Year 4 K47,000 Year 5 K8,000 Investment at the start of the project would be K175, 000,000.the investment sum assuming nil disposal value after five years, would be written off using the equal instalment method. The depreciation has been included in the profit estimates above, which should be assumed to arise at each year end. Assume the cost of Capital is 12% Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 D.f 1.00 0.893 0.797 0.712 0.636 0.567arrow_forwardMolin Inc. is considering to a project that will have the following series of cash flow from assets (in $ million): Year Cash flow 0 -1,580.92 1 453 2 749 3 935 The required return for the project is 6%. Year Cash flow 0 -1,580.92 1 453 2 749 3 935 1. The required return for the project is 6%. 2. What is the project's profitability index? 3. What is the internal rate of return (IRR) for this project?arrow_forward
- A project is estimated to cost P110,000, last 8 years and have a P15,000 salvagevalue. The annual gross income is expected to average P24,000 and annualexpenses, excluding depreciation, will total P6,000. If capital is earning 10% beforeincome taxes, determine if this is a desirable investment using A. Present Worth Method :B. Future Worth MethodC. Payback Period in yearsarrow_forwardUse the information provided to answer the questions.5.1 Use the information provided below to calculate the following. Where applicable, use the presentvalue tables provided in APPENDICES 1 and 2 that appear after QUESTION 5.5.1.1 Calculate the Payback Period of Project A (expressed in years, months and days). 5.1.2Calculate the Accounting Rate of Return (on average investment) of Project B (expressed to twodecimal places). 5.1.3 Calculate the Net Present Value of each project (with amounts rounded off to the nearest Rand). 5.1.4 Use your answers from question 5.1.3 to recommend the project that should be chosen. Motivateyour choice.arrow_forwardCalculate the Accounting Rate of Return (ARR) of the investment Internal rate of return (IRR) The annual incremental profits/ (losses) relating to the investment are estimated as follows: Years CF’s (000) Year 0 -175,000 Year 1 K11,000 Year 2 K3,000 Year 3 K34,000 Year 4 K47,000 Year 5 K8,000 Investment at the start of the project would be K175, 000,000.the investment sum assuming nil disposal value after five years, would be written off using the equal instalment method. The depreciation has been included in the profit estimates above, which should be assumed to arise at each year end. Assume the cost of Capital is 12% Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 D.f 1.00 0.893 0.797 0.712 0.636 0.567arrow_forward
- Find the modified internal rate of return (MIRR) for a proposed project costing $12,513. Assume that the appropriate cost of capital for projects of this risk level, at this company is 10.96%, and the estimated cash flows for the life of the project are found in the table below. (If you calculate an MIRR of 20.22% , please enter 20.22- do not include the % symbol, and use at least two decimal places). Year 1 $7,261 Year 2 $4,832 Year 3 $9,441.2 Year 4 $13,000 Year 5 $12,638arrow_forwardStudy the information given below and determine, based on its Net Present Value (NPV), whether the investment should be favourably considered for acceptance or not. INFORMATIONLotto Ltd plans an investment in non-current assets costing R3 000000 . The non-current assets are expected to have a four-year life, with the following net profits anticipated:[Year 1,R350 000],[Year 2,R750 000],[Year 3,R200 000],[Year 4,R170 000]] Working capital amounting to R200 000 will be required at the start of the project. All the working capital will be recovered at the end of year 4 . The expected scrap value of the non-current assets is R400 000. The cost of capital is 12%. Ignore taxes.arrow_forwardWhich of the following statements is true? The internal rate of return is the rate of return of an investment project over its useful life. When the net cash inflow is the same every year for a project after the initial investment, the internal rate of return of a project can be determined by dividing the initial investment required in the project by the annual net cash inflow. This computation yields a factor that can be looked up in a table of present values of annuities to find the internal rate of return. Multiple Choice Only statement I is true. Only statement II is true. Both statements are true.arrow_forward
- Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 −$29,000 −$29000 1 14,400 4,300 2 12,300 9,800 3 9,200 15,200 4 5,100 16,800 a) What is the Internal Rate of Return (IRR) for each of these projects? b) Using the IRR decision rule, which project should the company accept? c) If the required return is 11 percent, what is the Net Present Value (NV) for each of these projects? d) Using the NPV decision rule, which project should the company accept? e) Why do you think the NPV and IRR rules do not agree on same project approval/rejection direction?arrow_forwardConsider the following after-tax cash flows: (a) Compute the project balances for Projects A and D, as a function of project year, at i = 10%.(b) Compute the future worth values for Projects A and D at i = 10% at theend of service life.(c) Suppose that Projects Band Care mutually exclusive. Assume also that the required service period is eight years and that the company is considering leasing comparable equipment that has an annual lease expense of $3,000 for the remaining years of the required service period. Which project is the better choice?arrow_forwardFoster Manufacturing is analyzing a capital investment project that is forecasted to produce the following cash flows and net income: After-Tax Cash Flows $(20,000) Net Income Year 1 6,000 2,000 6,000 8,000 2,000 3 2,000 8,000 2,000 Using the present value tables provided in Appendix A, the internal rate of return (rounded to the nearest whole percentage) is: а. 5%. b. 12%. C 14%. d. 40%.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College