Fundamentals of Financial Management (MindTap Course List)
15th Edition
ISBN: 9781337395250
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Textbook Question
Chapter 12, Problem 17P
EQUIVALENT ANNUAL
Time | Cash Flow X | Cash Flow Y |
0 | ($80,000) | ($75,000) |
1 | 40,000 | 35,000 |
2 | 60,000 | 35,000 |
3 | 70,000 | 35,000 |
4 | _ | 35,000 |
5 | _ | 5,000 |
Projects X and Y are equally risky and may be repeated indefinitely. If the firm’s WACC is 10%, what is the EAA of the project that adds the most value to the firm? (Round your final answer to the nearest whole dollar.)
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Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both of their risk class is 8 percent, and that the maximum allowable
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Time
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2
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Use the NPV decision rule to evaluate these projects; which one(s) should be accepted or rejected?
Multiple Choice
Accept A, reject B
Accept neither A nor B
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A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following
cash flows:
Year
Cash Flow
-$ 27,600
11,600
14,600
10,600
1
2
If the required return is 18 percent, what is the IRR for this project? (Do not round intermediate
calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
IRR
%
Should the firm accept the project?
O No
Yes
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Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both of their risk class is 10 percent, and that the maximum allowable payback and discounted payback statistic for the projects are 2 and 3 years, respectively.
Time
0
1
2
3
Project A Cash Flow
-22,000
12,000
32,000
3,000
Project B Cash Flow
-32,000
12,000
22,000
52,000
Use the PI decision rule to evaluate these projects; which one(s) should it be accepted or rejected?
Multiple Choice
A. Reject A, accept B
B. Accept both A and B
C. Accept neither A nor B
D. Accept A, reject B
Chapter 12 Solutions
Fundamentals of Financial Management (MindTap Course List)
Ch. 12 - Operating cash flows rather than accounting income...Ch. 12 - Explain why sunk costs should not be included in a...Ch. 12 - Explain why net operating working capital is...Ch. 12 - Why are interest charges not deducted when a...Ch. 12 - Prob. 5QCh. 12 - What are some differences in the analysis for a...Ch. 12 - Distinguish among beta (or market) risk,...Ch. 12 - Prob. 8QCh. 12 - Prob. 9QCh. 12 - If you were the CFO of a company that had to...
Ch. 12 - What is a "replacement chain"? When and how should...Ch. 12 - What is an "equivalent annual annuity (EAA)"? When...Ch. 12 - Suppose a firm is considering two mutually...Ch. 12 - REQUIRED INVESTMENT Tannen Industries is...Ch. 12 - Prob. 2PCh. 12 - AFTER-TAX SALVAGE VALUE Karsted Air Services is...Ch. 12 - REPLACEMENT ANALYSIS The Oviedo Company is...Ch. 12 - EQUIVALENT ANNUAL ANNUITY Faleye Consulting is...Ch. 12 - DEPRECIATION METHODS Charlene is evaluating a...Ch. 12 - SCENARIO ANALYSIS Huang Industries is considering...Ch. 12 - NEW PROJECT ANALYSIS You must evaluate the...Ch. 12 - NEW PROJECT ANALYSIS You must evaluate a proposal...Ch. 12 - REPLACEMENT ANALYSIS The Dauten Toy Corporation...Ch. 12 - REPLACEMENT ANALYSIS St. Johns River Shipyards is...Ch. 12 - PROJECT RISK ANALYSIS The Butler-Perkins Company...Ch. 12 - UNEQUAL LIVES Crockett Graphic Designs Inc. is...Ch. 12 - UNEQUAL LIVES Overton Clothes Inc. is considering...Ch. 12 - REPLACEMENT CHAIN Rini Airlines is considering two...Ch. 12 - REPLACEMENT CHAIN The Lesseig Company has an...Ch. 12 - EQUIVALENT ANNUAL ANNUITY A firm has two mutually...Ch. 12 - SCENARIO ANALYSIS Your firm, Agrico Products, is...Ch. 12 - NEW PROJECT ANALYSIS Holmes Manufacturing is...Ch. 12 - REPLACEMENT ANALYSIS The Darlington Equipment...Ch. 12 - REPLACEMENT ANALYSIS The Bigbee Bottling Company...
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