BARUCH FUND OF CORPORATE FIN. W/CONNECT
BARUCH FUND OF CORPORATE FIN. W/CONNECT
10th Edition
ISBN: 9781264531820
Author: BREALEY
Publisher: MCG CUSTOM
Question
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Chapter 9, Problem 1QP
Summary Introduction

To determine: The cash flow to use for determining the present value.

Expert Solution & Answer
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Explanation of Solution

Computation of cash flow:

Gross revenue (new chip)=12 million×$25=$300 million

Cost of new chip=12 million×$8=$96 million

Lost sales of old chip=7 million×$20=$140 million

Saved cost of old chip=7 million×$6=$42 million

Increase in cash flow=($300$96)($140$42)=$106 million

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