PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 2, Problem 16PS
- a. What is the
NPV if the opportunity cost of capital is 8%? - b. Halcyon could finance the ship by borrowing the entire investment at an interest rate of 4.5%. How does this borrowing opportunity affect your calculation of NPV?
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Halcyon Lines is considering the purchase of a new bulk carrier for $6.6 million. The forecasted revenues are $7.0 million a year and operating costs are $6.0 million. A major refit costing $4.0 million will be required after both the fifth and tenth years. After 15 years, the ship is expected to be sold for scrap at $3.5 million.
a. What is the NPV if the opportunity cost of capital is 10%? (Enter your answer in dollars, not millions of dollars. Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)
b. Halcyon could finance the ship by borrowing the entire investment at an interest rate of 4.5%. Will this borrowing opportunity affect your calculation of NPV?
multiple choice
Yes
No
Your company is considering the purchase of a new ship for $8 million. The forecasted revenues are $5 million a year and operating costs are $4 million. A major refit costing $2 million will be required after both the fifth and tenth years. After 15 years, the ship is expected to be sold for scrap at $1.5 million. What is the NPV if the opportunity cost of capital is 8%?
Halcyon Lines is considering the purchase of a new bulk carrier for $8.8 million. The forecasted revenues are $5.8 million a year and operating costs are $4.8 million. A major refit costing $2.8 million will be required
after both the fifth and tenth years. After 15 years, the ship is expected to be sold for scrap at $2.3 million.
a. What is the NPV if the opportunity cost of capital is 8%? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to the nearest whole dollar
amount.)
Net present value
$
b. Halcyon could finance the ship by borrowing the entire investment at an interest rate of 4.5%. Will this borrowing opportunity affect your calculation of NPV?
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Chapter 2 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 2 - (FV) In 1880, five aboriginal trackers were each...Ch. 2 - Prob. 2SQCh. 2 - (PV) Your company can lease a truck for 10,000 a...Ch. 2 - (RATE) Ford Motor stock was one of the victims of...Ch. 2 - Prob. 5SQCh. 2 - Prob. 6SQCh. 2 - Prob. 7SQCh. 2 - (NOMINAL) What monthly compounded interest rate...Ch. 2 - Opportunity cost of capital Which of the following...Ch. 2 - Opportunity cost of capital Explain why we refer...
Ch. 2 - Prob. 3PSCh. 2 - Compound interest New Savings Bank pays 4%...Ch. 2 - Compound interest In 2017, Leonardo da Vincis...Ch. 2 - Future values If you invest 100 at an interest...Ch. 2 - Prob. 7PSCh. 2 - Future values In the five years preceding the end...Ch. 2 - Discount factors a. If the present value of 139 is...Ch. 2 - Prob. 10PSCh. 2 - Prob. 11PSCh. 2 - Present values What is the PV of 100 received in:...Ch. 2 - Prob. 13PSCh. 2 - Present values A factory costs 800,000. You reckon...Ch. 2 - Present values Recalculate the NPV of the office...Ch. 2 - Present values and opportunity cost of capital...Ch. 2 - Perpetuities An investment costs 1,548 and pays...Ch. 2 - Perpetuities You have just read an advertisement...Ch. 2 - Growing perpetuities A common stock will pay a...Ch. 2 - Prob. 20PSCh. 2 - Prob. 21PSCh. 2 - Annuities Kangaroo Autos is offering free credit...Ch. 2 - Annuities David and Helen Zhang are saving to buy...Ch. 2 - Prob. 24PSCh. 2 - Annuities Several years ago, The Wall Street...Ch. 2 - Prob. 26PSCh. 2 - Prob. 27PSCh. 2 - Prob. 28PSCh. 2 - Prob. 29PSCh. 2 - Annuities due A store offers two payment plans....Ch. 2 - Amortizing loans A bank loan requires you to pay...Ch. 2 - Amortizing loans Suppose that you take out a...Ch. 2 - Future values and annuities a. The cost of a new...Ch. 2 - Prob. 34PSCh. 2 - Growing annuities You are contemplating membership...Ch. 2 - Prob. 36PSCh. 2 - Growing perpetuities and annuities Your firms...Ch. 2 - Compounding intervals A leasing contract calls for...Ch. 2 - Compounding intervals Which would you prefer? a....Ch. 2 - Compounding intervals You are quoted an interest...Ch. 2 - Prob. 41PSCh. 2 - Continuous compounding How much will you have at...Ch. 2 - Continuous compounding The continuously compounded...Ch. 2 - Prob. 44PSCh. 2 - Annuities Use Excel to construct your own set of...Ch. 2 - Declining perpetuities and annuities You own an...
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