PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 22, Problem 22PS
Summary Introduction
To discuss: Two descriptions of identical payoffs, given optimal exercise strategies.
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A firm is considering two location alternatives. At location C, fixed costs would be $5,000,000 per year, and variable
costs $0.25 per unit. At alternative D, fixed costs would be $4,500,000 per year, with variable costs of $0.35 per unit. If
annual demand is expected to be 4.5 million units, which plant offers the lowest total cost?
Select one:
O a. Plant C, because Plant C is cheaper than Plant D for all volumes.
O b. Plant D, because Plant D is cheaper than Plant C for all volumes below 5 million units.
Oc. Neither Plant C nor Plant D, because the crossover point is at 4.5 million units.
O d. Plant D, because Plant D is cheaper than Plant C for all volumes.
Oe. Plant C, because Plant C is cheaper than Plant D for all volumes below 5 million units.
Advanced Modular Technology (AMT) makes energy cleaner, safer, more secure and more efficient. It
typically exhibits net annual revenues that increase over a fairly long period. In the long run, an AMT
project may be profitable as measured by IRR, but its simple payback period may be unacceptable
Evaluate this AMT project using the IRR method when the company MARR is 26% per year and its
maximum alowable payback period is three years. What is your recommendation?
Capital investment at time 0
Net revenues in year k
$99.000
$21.000 +
Market (salvage) value
Life
$0,000 - (-1)
$9,000
7 years
The internal rate of return is%. (Round to one decimal place.)
Advanced Modular Technology (AMT) makes energy cleaner, safer, more secure, and more efficient. It typically exhibits net annual revenues that increase over a fairly long period. In the long run, an AMT project may be profitable as measured by IRR, but its simple payback period may be unacceptable. Evaluate this AMT project using the IRR method when thecompany MARR is 15% per year and its maximum allowable payback period is three years. What is your recommendation?
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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