Chapter 09 Problems Fundamental Of Corporate Finance
Chapter 09 Problems Fundamental Of Corporate Finance
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Chapter 09 Problems Fundamental Of Corporate Finance
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Buy Coastal, Inc., imposes a payback cutoff of three years for its international investment projects. 
Year  Cash Flow (A)  Cash Flow (B)  
0  –$  53,000  –$  63,000  
1  19,500  11,500  
2  21,000  14,500  
3  17,500  19,000  
4  4,500  223,000  
What is the payback period for both projects? (Round your answers to 2 decimal places. (e.g., 32.16)) 
Payback period  
Project A  years 
Project B  years 
Which project should the company accept?  

An investment project costs $10,000 and has annual cash flows of $2,950 for six years. 
What is the discounted payback period if the discount rate is zero percent? (Enter 0 if the project never pays back. Round your answer to 2 decimal places. (e.g., 32.16)) 
Discounted payback period  years 
What is the discounted payback period if the discount rate is 4 percent? (Enter 0 if the project never pays back. Round your answer to 2 decimal places. (e.g., 32.16)) 
Discounted payback period  years 
What is the discounted payback period if the discount rate is 21 percent? (Enter 0 if the project never pays back. Round your answer to 2 decimal places. (e.g., 32.16)) 
Discounted payback period  years 
A project that provides annual cash flows of $16,600 for eight years costs $72,000 today. 
What is the NPV for the project if the required return is 7 percent? (Round your answer to 2 decimal places. (e.g., 32.16)) 
NPV  $ 
At a required return of 7 percent, should the firm accept this project?  

What is the NPV for the project if the required return is 19 percent? (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places. (e.g., 32.16)) 
NPV  $ 
At a required return of 19 percent, should the firm accept this project?  

At what discount rate would you be indifferent between accepting the project and rejecting it? (Round your answer to 2 decimal places. (e.g., 32.16)) 
Discount rate  % 
Garage, Inc., has identified the following two mutually exclusive projects: 
Year  Cash Flow (A)  Cash Flow (B)  
0  –$  29,200  –$  29,200  
1  14,600  4,400  
2  12,500  9,900  
3  9,300  15,400  
4  5,200  17,000  
a1  What is the IRR for each of these projects? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) 
IRR  
Project A  % 
Project B  % 
a2  Using the IRR decision rule, which project should the company accept?  

a3  Is this decision necessarily correct?  

b1  If the required return is 10 percent, what is the NPV for each of these projects? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) 
NPV  
Project A  $ 
Project B  $ 
b2  Which project will the company choose if it applies the NPV decision rule?  

c.  At what discount rate would the company be indifferent between these two projects? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) 
Discount rate  % 
Slow Ride Corp. is evaluating a project with the following cash flows: 
Year  Cash Flow  
0  –$  29,900  
1  12,100  
2  14,800  
3  16,700  
4  13,800  
5  –  10,300  
The company uses an interest rate of 10 percent on all of its projects. 
Calculate the MIRR of the project using the discounting approach method. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) 
MIRR  % 
Calculate the MIRR of the project using the reinvestment approach method. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) 
MIRR  % 
Calculate the MIRR of the project using the combination approach method. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) 
MIRR  % 