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
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 8, Problem 30QP
LO3 LO4 30.
| Year | Cash Flow |
| 0 | –$862,000 |
| 1 | 303,800 |
| 2 | 219,700 |
| 3 | 320,000 |
| 4 | 288,700 |
All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are “blocked” and must be reinvested with the government for one year. The reinvestment rate for these funds is 4 percent. If Anderson uses a required return of 10 percent on this project, what are the NPV and IRR of the project? Is the IRR you calculated the MIRR of the project? Why or why not?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Anderson International Limited is evaluating a project in Erewhon. The project will create
the following cash flows:
Year
O
1
2
3
4
Cash Flow
-$
NPV
IRR
1,320,000
495,000
560,000
455,000
410,000
All cash flows will occur in Erewhon and are expressed dollars. In an attempt to
improve its economy, the Erewhonian government has declared that all cash flows
created by a foreign company are “blocked” and must be reinvested with the
government for one year. The reinvestment rate for these funds is 3 percent. If Anderson
uses a required return of 14 percent on this project, what are the NPV and IRR of the
project? (A negative answer should be indicated by a minus sign. Do not round
intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.
Enter your IRR as a percent.)
%
Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows:
Cash Flow
-$ 583,000
213,000
156,000
221,000
200,000
Year
0
1
2
3
4
All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian
government has declared that all cash flows created by a foreign company are "blocked" and must be reinvested with the
government for one year. The reinvestment rate for these funds is 4 percent. Assume Anderson uses a required return of 11
percent on this project.
a. What is the NPV of the project?
Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16.
b. What is the IRR of the project?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.
a. NPV
b. IRR
%
Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows:
Year
0
1
2
3
4
Cash Flow
-$ 1,785,000
610,000
707,000
580,000
483,000
All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government
has declared that all cash flows created by a foreign company are "blocked" and must be reinvested with the government for one year.
The reinvestment rate for these funds is 4 percent. Assume Anderson uses a required return of 11 percent on this project.
a. What is the NPV of the project?
Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer
to 2 decimal places, e.g., 32.16.
b. What is the IRR of the project?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
a. Net present value
b. Internal rate of return
%
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
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: Year Cash Flow -$590,000 0 1 2 √34 3 220,000 163,000 228,000 207,000 All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are "blocked" and must be reinvested with the government for one year. The reinvestment rate for these funds is 7 percent. Assume Anderson uses a required return of 13 percent on this project. a. What is the NPV of the project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the IRR of the project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. b. X Answer is complete but not entirely correct. NPV IRR $ 17,315.59 x 14.40 × %arrow_forwardAnderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: Year Cash Flow 0 −$ 584,000 1 214,000 2 157,000 3 222,000 4 201,000 All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are “blocked” and must be reinvested with the government for one year. The reinvestment rate for these funds is 5 percent. Assume Anderson uses a required return of 11 percent on this project. What is the NPV of the project? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. What is the IRR of the project? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.arrow_forwardAnderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: Year Cash Flow 0 –$ 1,170,000 1 345,000 2 410,000 3 305,000 4 260,000 All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are “blocked” and must be reinvested with the government for one year. The reinvestment rate for these funds is 3 percent. If Anderson uses a required return of 7 percent on this project, what are the NPV and IRR of the project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Enter your IRR as a percent.)arrow_forward
- Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: Year Cash Flow 0 –$591,000 1 221,000 2 164,000 3 229,000 4 208,000 All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are “blocked” and must be reinvested with the government for one year. The reinvestment rate for these funds is 4 percent. Assume Anderson uses a required return of 12 percent on this project. a. What is the NPV of the project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the IRR of the project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)arrow_forwardButler International Limited is evaluating a project in Erewhon. The project will create the following cash flows: Year Cash Flow 0 –$ 1,170,000 1 345,000 2 410,000 3 305,000 4 260,000 All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are “blocked” and must be reinvested with the government for one year. The reinvestment rate for these funds is 3 percent. If the company uses a required return of 7 percent on this project, what are the NPV and IRR of the project? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 2 decimal places, e.g., 32.16. Enter your IRR answer as a percent.)arrow_forwardAnderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: Year 0 Cash Flow -$ 588,000. 1 218,000 161,000 226,000 205,000 All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are "blocked" and must be reinvested with the government for one year The reinvestment rate for these funds is 5 percent. Assume Anderson uses a required return of 12 percent on this project. a. What is the NPV of the project? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. What is the IRR of the project? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. NPV b. IRRarrow_forward
- ABC International is evaluating a project in Buffalo. The project will create the following cash flows: Year Cash Flow 0 -$1,160,000 1 $335,000 2 $400,000 3 $295,000 4 $250,000 All cash flow will occur in Buffalo and expressed in dollars. In an attempt to improve its economy, the Buffalo government declared that all cash flows created by a foreign company are blocked and must be re-invested with the government for one year. This re-investment of these funds is at 4%. If the company uses a required return at 7%, What is the NPV? and What is the IRR on this project.arrow_forwardAnderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: Year Cash Flow 0 -$589,000 1 219,000 2 162,000 3 227,000 4 206,000 All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are "blocked" and must be reinvested with the government for one year. The reinvestment rate for these funds is 6 percent. Assume Anderson uses a required return of 12 percent on this project. What is the NPV of the project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Net present value $ What is the IRR of the project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Internal rate of return %arrow_forwardAnderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: Year Cash Flow -$589,000 0 1 219,000 2 162,000 3 227,000 4 206,000 mt All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are "blocked" and must be reinvested with the government for one year. The reinvestment rate for these funds is 6 percent. Assume Anderson uses a required return of 12 percent on this project. a. What is the NPV of the project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the IRR of the project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. b. Answer is complete but not entirely correct. NPV IRR $ 28,171.96 X 14.24 %arrow_forward
- The management of Kawneer North America is considering investing in a new facility and the following cash flows are expected to result from the investment: A. What is the payback period of this uneven cash flow? B. Does your answer change if year 10s cash inflow changes to $500,000?arrow_forwardThere are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $34,580 and is expected to generate the following cash flows: First Year Second Year Third Year Total Alpha Project $32,000 $22,500 $4,500 $59,000 Beta Project 8,000 23,500 25,664 57,164 A. Calculate the internal rate of return on both projects. Use the IRR spreadsheet function to calculate internal rate of return. % Alpha Project Beta Project B. Make a recommendation on which one to accept.arrow_forwardThe management of Kawneer North America is considering investing in a new facility and the following cash flows are expected to result from the investment: Year Cash Outflow Cash Inflow $1,905,000 $105,000 555,000 200,000 360,000 475,000 515,000 605,000 595,000 305,000 250,000 250,000 A. What is the payback period of this uneven cash flow? Round your answer to 2 decimal places. 1 2 3 4 5 6 7 8 9 10 years B. Does your answer change if year 10's cash inflow changes to $500,000? The answer for part A if the cash inflow in year 10 changes to $500,000.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
Capital Budgeting Introduction & Calculations Step-by-Step -PV, FV, NPV, IRR, Payback, Simple R of R; Author: Accounting Step by Step;https://www.youtube.com/watch?v=hyBw-NnAkHY;License: Standard Youtube License