PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Question
Chapter 9, Problem 16PS
a.
Summary Introduction
To discuss: The condition of the operating leverage and the encabulator machine’s business risk if it is a fixed price contract.
b.
Summary Introduction
To compute: The present value of the encabulator machine with and without fixed price contract.
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Students have asked these similar questions
Dinshaw Company is considering the purchase of a new machine. The invoice price of the machine is $87,306, freight charges are estimated to be $2,620, and installation costs are expected to be $7,370. The annual cost savings are expected to be $14,980 for 11 years. The firm requires a 20% rate of return. Ignore income taxes. What is the internal rate of return on this investment?
Internal rate of return %
Round to 0 decimal placese
Suppose a company has an investment that costs $3,500 and requires a 20 percent
return. The project has a 5 year life. Selling price is $40, variable cost is $20, and FC
is $500. How many of their products do they need to sell to break even financially?
Suppose your company needs $10 million to build a new assembly line. Your target debt-
equity ratio is .4. The flotation cost for new equity is 10 percent, but the flotation cost for
debt is only 7 percent. Your boss has decided to fund the project by borrowing money
because the flotation costs are lower and the needed funds are relatively small.
a. What is your company's weighted average flotation cost, assuming all equity is raised
externally? (Do not round intermediate calculations and enter your answer as a
percent rounded to 2 decimal places, e.g., 32.16.)
b. What is the true cost of building the new assembly line after taking flotation costs into
account? (Do not round intermediate calculations and enter your answer in dollars,
not millions, rounded to the nearest whole number, e.g., 1,234,567.)
Answer is complete but not entirely correct.
9.73 %
a. Flotation cost
b. Amount
raised
11,010,000
4
Chapter 9 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 9 - (VAR.P and STDEV.P) Choose two well-known stocks...Ch. 9 - (AVERAGE, VAR.P and STDEV.P) Now calculate the...Ch. 9 - (SLOPE) Download the Standard Poors index for the...Ch. 9 - Definitions Define the following terms: a. Cost of...Ch. 9 - True/false True or false? a. The company cost of...Ch. 9 - Company cost of capital Quark Productions (Give...Ch. 9 - Company cost of capital The total market value of...Ch. 9 - Company cost of capital You are given the...Ch. 9 - Company cost of capital Nero Violins has the...Ch. 9 - WACC A company is 40% financed by risk-free debt....
Ch. 9 - WACC Binomial Tree Farms financing includes 5...Ch. 9 - Prob. 10PSCh. 9 - Measuring risk The following table shows estimates...Ch. 9 - Prob. 12PSCh. 9 - Asset betas Which of these projects is likely to...Ch. 9 - Asset betas EZCUBE Corp. is 50% financed with...Ch. 9 - Prob. 15PSCh. 9 - Prob. 16PSCh. 9 - Prob. 17PSCh. 9 - Fudge factors John Barleycorn estimates his firms...Ch. 9 - Prob. 19PSCh. 9 - Prob. 20PSCh. 9 - Certainty equivalents A project has a forecasted...Ch. 9 - Certainty equivalents A project has the following...Ch. 9 - Prob. 23PSCh. 9 - Beta of costs Suppose that you are valuing a...Ch. 9 - Fudge factors An oil company executive is...
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