Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Chapter 7, Problem 29QAP
(1)
Summary Introduction
To compute: The
Introduction: Investors invest in bonds to ensure regular income (interest income) on their investments. Bondholders are the investors who are risk averse.
(2)
Summary Introduction
To compute: The net present value of the project if the project is abandoned after 1 year.
Introduction: Investors invest in bonds to ensure regular income (interest income) on their investments. Bondholders are the investors who are risk averse.
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Question: The management of Fine Electronics Company is considering to purchase an equipment to be attached with the main manufacturing machine. The equipment will cost $6,000 and will increase annual cash inflow by $2,200. The useful life of the equipment is 6 years. After 6 years it will have no salvage value. The management wants a 20% return on all investments.
Required:
Compute net present value (NPV) of this investment project.
Should the equipment be purchased according to NPV analysis?
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Question
1. The management of Fine Electronics Company is considering to purchase an equipment to be attached
with the main manufacturing machine. The equipment will cost Gh¢6,000 and will increase annual
cash inflow by Gh¢2,200. The useful life of the equipment is 6 years. After 6 years it will have no
salvage value. The management wants a 20% return on all investments.
a. Compute net present value (NPV) of this investment project.
b. Should the equipment be purchased according to NPV analysis?
Accounting Rate of Return
WeCare Clinic is planning on investing in some new echocardiogram equipment that will require an initial outlay of $155,000. The system has an expected life of five years
and no expected salvage value. The investment is expected to produce the following net cash flows over its life: $74,000, $89,000, $91,000, $90,000, and $105,000.
Required:
1. Calculate the annual net income for each of the five years.
Net Income
Year 1
$
43,000
Year 2
$
58,000
Year 3
$
60,000
$
Year 4
Year 5
59,000
74,000
2. Calculate the accounting rate of return. Enter your answer as a whole percentage value (for example, 16% should be entered as "16").
38
%
3. What if a second competing revenue-producing investment has the same initial outlay and salvage value but the following cash flows (in chronological sequence):
$105,000, $105,000, $105,000, $74,000, and $30,000? Calculate its accounting rate of return. Enter your answer as a whole percentage value (for example, 16%
should be entered…
Chapter 7 Solutions
Corporate Finance
Ch. 7 - Forecasting Risk What is forecasting risk? In...Ch. 7 - Sensitivity Analysis and Scenario Analysis What is...Ch. 7 - Prob. 3CQCh. 7 - Break-Even Point As a shareholder of a firm that...Ch. 7 - Prob. 5CQCh. 7 - Real Options Why does traditional NPV analysis...Ch. 7 - Real Options The Mango Republic has just...Ch. 7 - Prob. 8CQCh. 7 - Prob. 9CQCh. 7 - Project Analysis You are discussing a project...
Ch. 7 - Sensitivity Analysis and Break-Even Point We are...Ch. 7 - Prob. 2QAPCh. 7 - Prob. 3QAPCh. 7 - Prob. 4QAPCh. 7 - Prob. 5QAPCh. 7 - Prob. 6QAPCh. 7 - Prob. 7QAPCh. 7 - Prob. 8QAPCh. 7 - Prob. 9QAPCh. 7 - Prob. 10QAPCh. 7 - Prob. 11QAPCh. 7 - Prob. 12QAPCh. 7 - Prob. 13QAPCh. 7 - Prob. 14QAPCh. 7 - Prob. 15QAPCh. 7 - Prob. 16QAPCh. 7 - Prob. 17QAPCh. 7 - Prob. 18QAPCh. 7 - Prob. 19QAPCh. 7 - Prob. 20QAPCh. 7 - Prob. 21QAPCh. 7 - Prob. 22QAPCh. 7 - Prob. 23QAPCh. 7 - Prob. 24QAPCh. 7 - Prob. 25QAPCh. 7 - Prob. 26QAPCh. 7 - Prob. 28QAPCh. 7 - Prob. 29QAPCh. 7 - Prob. 30QAP
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