Chapter 09 Problems Fundamental Of Corporate Finance
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? | ||||||
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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? | ||||
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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? | ||||
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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 | |||||
a-1 | 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 | % |
a-2 | Using the IRR decision rule, which project should the company accept? | ||||
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a-3 | Is this decision necessarily correct? | ||||
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b-1 | 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 | $ |
b-2 | Which project will the company choose if it applies the NPV decision rule? | ||||
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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 | % |