Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
9th Edition
ISBN: 9781259277214
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 8, Problem 27QP
LO1, LO4, LO6 27. Cash Flow Intuition. A project has an initial cost of I, has a required return of R, and pays C annually for N years.
a. Find C in terms of I and N such that the project has a payback period just equal to its life.
b. Find C in terms of I, N, and R such that this is a profitable project according to the
c. Find C in terms of I, N, and R such that the project has a benefit-cost ratio of 2.
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You have determined the profitability of a planned project by finding the present value of all the cash flows from that project. Which of the following would cause the project to look more appealing in terms of the present value of those cash flows?
A. The discount rate increases.
B. The cash flows are extended over a longer period of time, but the total amount of the cash flows remains the same.
C. The discount rate decreases.
D. Answers B and C above.
E. Answers A and B above.
6.Calculate the project's Modified Internal Rate of Return (MIRR). What critical assumption does the MIRR make that differentiates it from the IRR?
TIP : look for the definition of Modified Internal Rate of Return, and then do it in excel, easy !!!
Year
Net Cash flow
Future Value of Net Cash flow
0
-$20.8
example
1
$4.5
$7.97 (n=6, i=10%)=fv(.1,6,,4.5)
2
$6.3
(n=5, i=10%)
3
$5.2
(n=4, i=10%)
4
$3.9
(n=3, i=10%)
5
$2.1
(n=2, i=10%)
6
$1.3
(n=1, i=10%)
7
$0.5
(n=0, i=10%)
Sum = $XX.XX
MIRR = ( in excel ) Rate ( 7,-20.8, xx.xx)
7.Where does the value of MIRR fall relative to the discount rate and IRR?
which of the following statement is true>?
1. return on equity is the ratio of total assets to total net income
2. one must know the discount rate to compute the npv of a project but one can compute the IRR without referring to the discount rate.
3. there will always be one IRR regardless of cash flows
4. one must know the discount rate to compute the IRR of a project but one can compute the NPV without referring to the discount rate
5. payback accounts for time value of money
Chapter 8 Solutions
Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 8.1 - Prob. 8.1ACQCh. 8.1 - Prob. 8.1BCQCh. 8.2 - Prob. 8.2ACQCh. 8.2 - Prob. 8.2BCQCh. 8.3 - Prob. 8.3ACQCh. 8.3 - What are the weaknesses of the AAR rule?Ch. 8.4 - Prob. 8.4ACQCh. 8.4 - Prob. 8.4BCQCh. 8.5 - What does the profitability index measure?Ch. 8.5 - Prob. 8.5BCQ
Ch. 8.6 - Prob. 8.6ACQCh. 8.6 - If NPV is conceptually the best tool for capital...Ch. 8 - Prob. 8.1CCh. 8 - Prob. 8.2CCh. 8 - Prob. 8.3CCh. 8 - Prob. 8.4CCh. 8 - Prob. 1CTCRCh. 8 - Prob. 2CTCRCh. 8 - Prob. 3CTCRCh. 8 - Prob. 4CTCRCh. 8 - Net Present Value. Concerning NPV: a.Describe how...Ch. 8 - LO3 8.6.Internal Rate of Return. Concerning IRR:...Ch. 8 - Prob. 7CTCRCh. 8 - Prob. 8CTCRCh. 8 - Prob. 9CTCRCh. 8 - Prob. 10CTCRCh. 8 - Prob. 11CTCRCh. 8 - Prob. 12CTCRCh. 8 - Internal Rate of Return. In a previous chapter, we...Ch. 8 - Net Present Value. It is sometimes stated that the...Ch. 8 - Prob. 15CTCRCh. 8 - LO1 l.Calculating Payback. What is the payback...Ch. 8 - Calculating Payback. An investment project...Ch. 8 - Prob. 3QPCh. 8 - Calculating AAR. Youre trying to determine whether...Ch. 8 - Calculating IRR. A firm evaluates all of its...Ch. 8 - LO4 6. Calculating NPV. For the cash flows in the...Ch. 8 - Calculating NPV and IRR. A project that LO3, LO4...Ch. 8 - Prob. 8QPCh. 8 - Prob. 9QPCh. 8 - LO3 LO4 10.NPV versus IRR. Zayas, LLC, has...Ch. 8 - Prob. 11QPCh. 8 - Prob. 12QPCh. 8 - Prob. 13QPCh. 8 - LO4 LO6 14.Problems with Profitability Index. The...Ch. 8 - LO1, LO3, LO4, LO6 15.Comparing Investment...Ch. 8 - LO3 LO4 16.NPV and IRR. Reece Company is presented...Ch. 8 - LO4 LO6 17.NPV and Profitability Index. Robben...Ch. 8 - Crossover Point. Hodgkiss Enterprises has gathered...Ch. 8 - Payback Period and IRR. Suppose you have a project...Ch. 8 - NPV and Discount Rates. An investment has an...Ch. 8 - NPV and Payback Period. Kaleb Konstruction, Inc.,...Ch. 8 - Prob. 22QPCh. 8 - MIRR. Suppose the company in the previous problem...Ch. 8 - Crossover and NPV. Seether, Inc., has the...Ch. 8 - LO3 LO4 25.Calculating IRR. A project has the...Ch. 8 - Prob. 26QPCh. 8 - LO1, LO4, LO6 27.Cash Flow Intuition. A project...Ch. 8 - Prob. 28QPCh. 8 - Prob. 29QPCh. 8 - LO3 LO4 30.NPV and IRR. Anderson International...Ch. 8 - Bullock Gold Mining Seth Bullock, the owner of...Ch. 8 - Bullock Gold Mining Seth Bullock, the owner of...Ch. 8 - Prob. 3CC
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