Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 5, Problem 13PS
Summary Introduction
To determine: The cost of capital at which the company should work the extra shift using
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The Titanic Shipbuilding Company has a noncancelable contract to build a small cargo vessel Construction involves a cash outlay of
$271,000 at the end of each of the next two years. At the end of the third year, the company will receive payment of $645,000.
The company can speed up construction by working an extra shift. In this case, there will be a cash outlay of $585,000 at the end of
the first year followed by a cash payment of $645,000 at the end of the second year. Use the IRR rule to show the (approximate) range
of opportunity costs of capital at which the company should work the extra shift.
Note: Enter your answers as a percent rounded to 2 decimal places. Enter the smallest percent first.
The company should work the extra shit the cost of capital is between
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The Titanic Shipbuilding Company has a noncancelable contract to build a small cargo vessel. Construction involves a cash outlay of
$271,000 at the end of each of the next two years. At the end of the third year the company will receive payment of $645,000.
Assume the IRR of this option exceeds the cost of capital.
The company can speed up construction by working an extra shift. In this case there will be a cash outlay of $585,000 at the end of
the first year followed by a cash payment of $645,000 at the end of the second year. Use the IRR rule to show the (approximate) range
of opportunity costs of capital at which the company should work the extra shift. (Enter your answers as a percent rounded to 2
decimal places. Enter the smallest percent first.)
The company should work the extra shift if the cost of capital is between
% and
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C12. A contractor gets revenue of $30,000 every year on the below earthmoving contract.
Buy a heavy-duty truck for $35,000, salvage is expected to be $3000 at the end of the vehicle’s 5-year MACRS depreciable life. Maintenance is $1000/year, monthly operating expenses are $1000.
Is it worth signing the contract? Justify. The expected RoR is 9%.
Chapter 5 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 5 - (IRR) Check the IRRs for project F in Section 5-3.Ch. 5 - (IRR) What is the IRR of a project with the...Ch. 5 - (XIRR) What is the IRR of a project with the...Ch. 5 - Payback a. What is the payback period on each of...Ch. 5 - IRR Write down the equation defining a projects...Ch. 5 - Prob. 3PSCh. 5 - IRR rule You have the chance to participate in a...Ch. 5 - IRR rule Consider a project with the following...Ch. 5 - IRR rule Consider projects Alpha and Beta: The...Ch. 5 - Capital rationing Suppose you have the following...
Ch. 5 - Payback Consider the following projects: a. If the...Ch. 5 - Prob. 9PSCh. 5 - IRR Calculate the IRR (or IRRs) for the following...Ch. 5 - IRR rule Consider the following two mutually...Ch. 5 - IRR rule Mr. Cyrus Clops, the president of Giant...Ch. 5 - Prob. 13PSCh. 5 - Profitability index Look again at projects D and E...Ch. 5 - Prob. 15PSCh. 5 - Prob. 16PS
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