PRINCIPLES OF TAXATION F/BUS.+INVEST.
22nd Edition
ISBN: 9781259917097
Author: Jones
Publisher: MCG
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Chapter 3, Problem 16AP
a.
To determine
Calculate
b.
To determine
Calculate net present value (NPV) and identify whether Firm W should make the investment or not.
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Students have asked these similar questions
Consider the cash flows for the investment projects given in Table. Assume that the
MARR = 10%.
(a) Suppose A, B, and C are mutually exclusive projects. Which project would be selected
on the basis of the IRR criterion?
(b) Assume that projects C and E are mutually exclusive. Using the IRR criterion, which
Project would you select?.
Net Cash Flow
B
D.
E
-4,850
2,100
2,100
2,500
4,250
3,200
2,850
800
300
4,250
4,250
2,850
2,900
1,050
500
-835
-835
-835
-835
1,500
3.250
1,600
1,200
2,100
2,100
Shaylee Corporation has $2.00 million to invest in new projects. The company's managers have presented a number of
possible options that the board must prioritize. Information about the projects follows:
Initial investment
Present value of future cash flows
Required:
1. Is Shaylee able to invest in all of these projects simultaneously?
2-a. Calculate the profitability index for each project.
2-b. What is Shaylee's order of preference based on the profitability index?
Complete this question by entering your answers in the tabs below.
Req 1
Project A
$ 435,000
785,000
Req 2A and 2B
Is Shaylee able to invest in all of these projects simultaneously?
Is Shaylee able to invest in all of these projects simultaneously?
Project C
$ 740,000
1,220,000
Project D
$ 965,000
1,580,000
Below is the schedule of cash flows for Investment PEK and Investment PVG.
1. Using the NPV, and IRR as criteria, which between Investment PEK and Investment PVG will you choose? Which is the best
decision criterion? Justify your answer. Note that your capital outlay for Investment PEK is RMB 85,000.00 and your capital outlay
for Investment PVG is also RMP 85,000.00. Assume that the interest rate is 10%.
2. How will your answer in (1) change if the interest rate increases by 5%?
3. How will your answer in (1) change if the interest rate decreases by 5%?
4. Comment on the impact of changing the interest rate on your NPV and IRR.
Year-end Cash Flow
Year
PEK
PVG
1
30,000.00
50,000.00
2
30,000.00
20,000.00
30,000.00
24,000.00
4
30,000.00
26,000.00
5
30,000.00
18,000.00
Chapter 3 Solutions
PRINCIPLES OF TAXATION F/BUS.+INVEST.
Ch. 3 - Does the NPV of future cash flows increase or...Ch. 3 - Explain the relationship between the degree of...Ch. 3 - Does the after-tax cost of a deductible expense...Ch. 3 - Prob. 4QPDCh. 3 - Prob. 5QPDCh. 3 - Prob. 6QPDCh. 3 - Prob. 7QPDCh. 3 - Which type of tax law provision should be more...Ch. 3 - In the U.S. system of criminal justice, a person...Ch. 3 - Identify two reasons why a firms actual marginal...
Ch. 3 - Prob. 11QPDCh. 3 - Prob. 12QPDCh. 3 - Prob. 1APCh. 3 - Prob. 2APCh. 3 - Prob. 3APCh. 3 - Use a 5 percent discount rate to compute the NPV...Ch. 3 - Consider the following opportunities: Opportunity...Ch. 3 - Prob. 6APCh. 3 - Refer to the income tax rate structure in the...Ch. 3 - Prob. 8APCh. 3 - Company N will receive 100,000 of taxable revenue...Ch. 3 - Prob. 10APCh. 3 - Investor B has 100,000 in an investment paying 9...Ch. 3 - Firm E must choose between two alternative...Ch. 3 - Company J must choose between two alternate...Ch. 3 - Firm Q is about to engage in a transaction with...Ch. 3 - Corporation ABC invested in a project that will...Ch. 3 - Prob. 16APCh. 3 - Investor W has the opportunity to invest 500,000...Ch. 3 - Prob. 18APCh. 3 - Prob. 19APCh. 3 - Prob. 20APCh. 3 - Prob. 21APCh. 3 - Prob. 1IRPCh. 3 - Firm V must choose between two alternative...Ch. 3 - Prob. 3IRPCh. 3 - Refer to the facts in problem 3. Company WB is...Ch. 3 - Prob. 5IRPCh. 3 - Prob. 6IRPCh. 3 - Prob. 7IRPCh. 3 - Prob. 8IRPCh. 3 - Prob. 9IRPCh. 3 - Prob. 1TPCCh. 3 - Firm D is considering investing 400,000 cash in a...
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