PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 22, Problem 13PS
Summary Introduction
To determine: The sensitivity analysis showing the value of abandonment put changes.
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Students have asked these similar questions
If the decision is made by choosing the project with the higher IRR, how much value will be forgone?
Suppose the net present values of projects A and B show a distribution as follows. a) Compare the projects by expected value criteria?b) Compare the projects by standard deviation criteria?c) Evaluate A and B projects according to the coefficient of variation criterion?Calculate on paper.
QUESTION 5
Invest in any or all of the four projects whose relevant cash flows are given in the following table.
The firm has RM7,000,000 budgeted to fund these projects, all of which are known to be
acceptable. Initial investment for each project is the same for all projects which is RM1,600,000.
The rate of retum for all projects is equivalent to 8%.
Operating cash outflow
Project X
Project Y
Year 1
Cash Outflow
RM1,600,000 (for each project)
RM
440,000
340,000
220,000
(110,000)
( 95,000 )
105,000
Operating Cash Inflows
RM
140,000
180,000
250,000
260,000
370,000
460,000
1
2.
3.
4.
5.
6.
7.
220,000
388,000
8.
9.
Use this table for PROJECT X and Y
Period
PVIF 8%
0.9259
0.8573
3
0.7938
4
0.7350
0.6806
0.6302
7
0.5835
8
0.5403
0.5002
10
0.4632
Chapter 22 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 22 - Real options Respond to the following comments. a....Ch. 22 - Prob. 2PSCh. 22 - Real options True or false? a. Real-options...Ch. 22 - Prob. 4PSCh. 22 - Real options Describe each of the following...Ch. 22 - Expansion options Look again at the valuation in...Ch. 22 - Expansion options Look again at Table 22.2. How...Ch. 22 - Prob. 8PSCh. 22 - Timing options Look back at the Malted Herring...Ch. 22 - Prob. 10PS
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Which of the following statements is CORRECT? a. An NPV profile graph shows how a project's payback varies as the cost of capital changes. b. The NPV profile graph for a normal project will generally have a positive (upward) slope as the life of the project increases. c. An NPV profile graph is designed to give decision makers an idea about how a project's risk varies with its life. d. An NPV profile graph is designed to give decision makers an idea about how a project's contribution to the firm's value varies with the cost of capital. e. We cannot draw a project's NPV profile unless we know the appropriate WACC for use in evaluating the project's NPV. Provide explanation for the choicearrow_forwardThe period of time, or width of the “window,” over which alternatives will becompared is also known as the: a. Planning horizon b. Shortest life c. Minimum Attractive Rate of Return d. Do-nothing alternativearrow_forwardThe analysis of the effect that a single variable has on the net present value of a project is called _____ analysis. Group of answer choices variable erosion sensitivity scenario cost-benefitarrow_forward
- A.) Which project is least risky, judging on the basis of range? (Project A, B, C, or D)B.) Which project has the lowest standard deviation? (Project A, B, C, or D)C.) Which project do you think Frederic’s owners should choose? (Project A, B, C, or D)arrow_forwardWhen you assign the highest anticipated sales and price and the lowest anticipated costs to a project, you are analyzing the project under the condition known as: base-case scenario analysis best-case sensitivity analysis worst-case sensitivity analysis best-case scenario analysis worst-case scenario analysisarrow_forwardBelow are some statements about risk and investment appraisal. Which one is incorrect? A. Risk-adjusted hurdle rates could be used to allow for the risk of a project B. Risk could be allowed for in a project by shortening the pay-back period C. While sensitivity analysis does not directly imbed risk in the appraisal process it is helpful for identifying "key" variables D. Risk decreases with the length of a project E. Probability analysis can be used to allow for the risk of different economic conditionsarrow_forward
- What are the shortcomings of the internal rate of return criterion? How do you make an investment decision based on the IRR? How would the NPV of the same project look?arrow_forward1. Compute the expected net present value and comment on the acceptability of the project considering the associated risk.arrow_forwardIndicate whether its True or False. Then write the explanation! The twin advantages with using the IRR method as opposed to the NPV method for project evaluation is that you don’t need to worry about what an appropriate risk- adjusted discount rate might be for the project and you will always get the correct answer to the investment decision.arrow_forward
- Comparing Investment Criteria. Define each of the following investment rules and discuss any potential shortcomings of each. In your definition, state the criterion for accepting or rejecting independent projects under each rule. a. Payback period. b. Internal rate of return. c. Profitability index. d. Net present value.arrow_forwardExplain the concept of sensitivity analysis as determined by NPV Breakeven sensitivity. How is it measured and what insights does it provide about the risk of a project? Goal seek can be used to evaluate the NPV breakeven of an input. What needs to happen next in order to evaluate and interpret the results? How do we know whether the results suggest that an input adds a little, or a lot, of risk relative to a project?arrow_forwardIf three investment alternatives all have some degree of risk and different expected returns, which of the following measures could best be used to rank the risk levels of the projects? Group of answer choices The standard deviation of returns The coefficient of correlation The coefficient of variation The net present valuearrow_forward
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