Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
15th Edition
ISBN: 9780134476315
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Textbook Question
Chapter 10, Problem 10.26P
Integrative: Multiple IRRs Froogle Enterprises is evaluating an unusual investment project. What makes the project unusual is the stream of
Year | Cash flow |
0 | $ 200,000 |
1 | –920,000 |
2 | 1,582,000 |
3 | –1,205,200 |
4 | 343,200 |
- a. Why is it difficult to calculate the payback period for this project?
- b. Calculate the investment’s
net present value at each of the following discount rates: 0%, 5%, 10%, 15%, 20%, 25%, 30%, 35%. - c. What does your answer to part b tell you about this project’s
IRR ? - d. Should Froogle invest in this project if its cost of capital is 5%? What if the cost of capital is 15%?
- e. In general, when faced with a project like this one, how should a firm decide whether to invest in the project or reject it?
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Example 10.11: Multiple Internal Rates of Return
Strip Mine, Inc., is considering a project with cash flows described in the following table
Cash Flows (in $millions) at Date
2
-10
41
-30
-1
Compute the IRR of this project.
2) D&D is analyzing a project with the provided cash flow information. Can you
calculate the project's internal rate of return (IRR)? Keep in mind that the IRR of a
project can be lower than the weighted average cost of capital (WACC) or even
negative, in which case the project should be rejected.
Year
Cash flows
0
-$1,000
1
$425
2
$425
3
$425
Table 8-5 Cumulative (Single Tail) Probabilities of the Normal Probability Distribution (Areas
under the Normal Curve from – o to Z)
Example: the area to the left of Z = 1.34 is found by following the left Z column
down to 1.3 and moving right to the .04 column. At the intersection read 9099. The
area to the right of Z- 1.34 is - 9099 - 0901. The area between the mean (center
ZX line) and Z- 1.34 is 9099-5- 4099.
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.09
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5160
5199
5239
5279
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5359
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5596
5636
5675
5714
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5832
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5910
5948
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6026
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6103
6141
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.6255
6293
6331
6368
6406
6443
6480
6517
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6591
.6628
6664
6700
6736
6772
.6808
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6915
6950
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7123
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.7257
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8106
S133
8159
8186
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Chapter 10 Solutions
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
Ch. 10.1 - What is the financial managers goal in selecting...Ch. 10.2 - What is the payback period? How is it calculated?Ch. 10.2 - What weaknesses are commonly associated with the...Ch. 10.3 - How is the net present value (NPV) calculated for...Ch. 10.3 - Prob. 10.5RQCh. 10.3 - Prob. 10.6RQCh. 10.4 - Prob. 10.8RQCh. 10.4 - Prob. 10.9RQCh. 10.4 - Prob. 10.10RQCh. 10.5 - How is a net present value profile used to compare...
Ch. 10.5 - Prob. 10.13RQCh. 10 - Prob. 1ORCh. 10 - All techniques with NPV profile: Mutually...Ch. 10 - Elysian Fields Inc. uses a maximum payback period...Ch. 10 - Prob. E10.1WUECh. 10 - Prob. 10.2WUECh. 10 - Prob. E10.2WUECh. 10 - Axis Corp. is considering investment in the best...Ch. 10 - Prob. E10.3WUECh. 10 - Prob. 10.4WUECh. 10 - Prob. E10.4WUECh. 10 - Cooper Electronics uses NPV profiles to visually...Ch. 10 - Prob. E10.5WUECh. 10 - Payback period The Ball Shoe Company is...Ch. 10 - Payback comparisons Nova Products has a 5-year...Ch. 10 - Prob. 10.3PCh. 10 - Long-term investment decision, payback method Bill...Ch. 10 - Prob. 10.5PCh. 10 - Prob. 10.6PCh. 10 - Prob. 10.7PCh. 10 - Prob. 10.8PCh. 10 - Prob. 10.9PCh. 10 - Prob. 10.10PCh. 10 - Prob. 10.11PCh. 10 - Prob. 10.12PCh. 10 - NPV and EVA A project costs 2,500,000 up front and...Ch. 10 - Prob. 10.14PCh. 10 - Prob. 10.15PCh. 10 - Prob. 10.16PCh. 10 - Prob. 10.17PCh. 10 - Prob. 10.18PCh. 10 - Prob. 10.19PCh. 10 - Prob. 10.20PCh. 10 - Prob. 10.21PCh. 10 - Prob. 10.22PCh. 10 - Prob. 10.23PCh. 10 - Prob. 10.24PCh. 10 - All techniques with NPV profile: Mutually...Ch. 10 - Integrative: Multiple IRRs Froogle Enterprises is...Ch. 10 - Integrative: Conflicting Rankings The High-Flying...Ch. 10 - Problems with IRR White Rock Services Inc. has an...Ch. 10 - ETHICS PROBLEM Diane Dennison is a financial...Ch. 10 - Spreadsheet Exercise The Drillago Company is...
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