PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 6, Problem 7PS
Real and nominal flows Guandong Machinery is evaluating a new project to produce encapsulators. The initial investment in plant and equipment is RMB 500,000.15 Sales of encapsulators in year 1 are
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The Bokawkan company is considering to purchase a new machine. Annual cash returns on investment cost of P1,200,000 is expected to be at P220,000. Useful is estimated at 8 years. The company's cost of capital is 14% and income tax rate is 35%. What is the payback reciprocal of the investment?
a. 20.5%
b. 18.3%
c. 11.9%
d. 22.2%
Example
The investment in a new product requires a capital expenditure of € 45,000.-. The economic life time is
five years. The annual fixed operational payments are € 95,000.-. The proportional cash outs per unit
amounts to € 200.-. The internal interest rate (= WACC) is 10% and the number of selling units are
300/year. What is the minimum sales price/unit (x), which ensures the required profitability of the
investment?
Use
a) the NPV method
b) the annuity method!
An investment is expected to produce the following annual year-end cash flows:year 1: $5,000 year 4: $5,000year 2: $1,000 year 5: $6,000year 3: $0 year 6: $863.65The investment will cost $13,000 today.a. Will this investment be profitable?b. What will be the IRR (compounded annually) on this investment?c. Prove your answer in (b) by showing how much of each year’s cash flow is the recovery of the $13,000 investment and how much of the cash flow is return on investment. (Hint: See Concept Box 3.2.)
Chapter 6 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 6 - Cash flows Which of the following should be...Ch. 6 - Cash flows Reliable Electric, a major Ruritanian...Ch. 6 - Prob. 3PSCh. 6 - Prob. 4PSCh. 6 - Real and nominal flows Mr. Art Deco will be paid...Ch. 6 - Real and nominal flows Restate the net cash flows...Ch. 6 - Real and nominal flows Guandong Machinery is...Ch. 6 - Working capital Each of the following statements...Ch. 6 - Prob. 9PSCh. 6 - Project NPV Better Mousetraps research...
Ch. 6 - Project NPV A widget manufacturer currently...Ch. 6 - Project NPV Marsha Jones has bought a used...Ch. 6 - Project NPV United Pigpen is considering a...Ch. 6 - Project NPV Imperial Motors is considering...Ch. 6 - Project NPV and IRR A project requires an initial...Ch. 6 - Taxes and project NPV In the International Mulch...Ch. 6 - Depreciation and project NPV Suppose that Sudbury...Ch. 6 - Depreciation and project NPV Ms. T. Potts, the...Ch. 6 - Prob. 20PSCh. 6 - Prob. 21PSCh. 6 - Prob. 22PSCh. 6 - Equivalent annual cash flow Look at Problem 22...Ch. 6 - Equivalent annual cash flow Deutsche Transport can...Ch. 6 - Prob. 25PSCh. 6 - Mutually exclusive investments and project lives...Ch. 6 - Mutually exclusive investments and project lives...Ch. 6 - Mutually exclusive investments and project lives....Ch. 6 - Mutually exclusive investments and project lives...Ch. 6 - Mutually exclusive investments and project lives...Ch. 6 - Replacement decisions Machine C was purchased five...Ch. 6 - Replacement decisions Hayden Inc. has a number of...Ch. 6 - Replacement decisions. You are operating an old...Ch. 6 - Replacement decisions. A forklift will last for...Ch. 6 - The cost of excess capacity The presidents...Ch. 6 - Effective tax rates One measure of the effective...Ch. 6 - Equivalent annual costs We warned that equivalent...
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