Financial Management: Theory & Practice
16th Edition
ISBN: 9781337909730
Author: Brigham
Publisher: Cengage
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Textbook Question
Chapter 11, Problem 5P
Wendy’s boss wants to use straight-line
- a. What would the depreciation expense be each year under each method?
- b. Which depreciation method would produce the higher
NPV , and how much higher would it be? - c. Why might Wendy’s boss prefer straight-line depreciation?
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Fitzgerald Computers is considering a new project whose data are shown below. The required equipment has a 4-year
tax life, after which it will be worthless, and it will be depreciated by the straight-line method over 4 years. Revenues
and other operating costs are expected to be constant over the project's 4-year life. What is the project's Year 1 cash
flow?
Equipment cost (depreciable basis)
Straight-line depreciation rate
Sales revenues, each year
Operating costs (excl. deprec.)
Tax rate
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b. $28,438
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$60,000
$25,000
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RocketOwl, Inc. is considering a new product to bring to market. They
estimate the product would have a viable market for five years. If they wish
to do the project they will need to purchase equipment with a price of
$2,287,521. The firm will use straight-line depreciation to a value of
$500,000 and assume the equipment will have a pre-tax salvage value of
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2
3
4
5
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$861,893
$2,627,053
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RocketOwl, Inc. expects the project will need initial inventory for the project
of $107,528, and this amount will stay constant throughout the project.
They also expect in the investment year the project will generate accounts
receivable of $65,878 and accounts payable of $35,758. They also assume
that the project will generate accounts payable each year equal to 0.19 of
annual sales and accounts payable equal to 0.06 of…
Wary Corporation is considering the purchase of a machine that would cost $335,000 and would last for 5 years. At the end of 5 years,
the machine would have a salvage value of $48,000. The machine would reduce labor and other costs by $101,000 per year. The
company requires a minimum pretax return of 10% on all investment projects. (Ignore income taxes.)
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.
Required:
Determine the net present value of the project.
Note: Round your intermediate calculations and final answer to the nearest whole dollar amount.
Net present value
Chapter 11 Solutions
Financial Management: Theory & Practice
Ch. 11 - Prob. 2QCh. 11 - Why is it true, in general, that a failure to...Ch. 11 - Prob. 4QCh. 11 - Explain how net operating working capital is...Ch. 11 - How do simulation analysis and scenario analysis...Ch. 11 - Why are interest charges not deducted when a...Ch. 11 - Most firms generate cash inflows every day, not...Ch. 11 - What are some differences in the analysis for a...Ch. 11 - Distinguish among beta (or market) risk,...Ch. 11 - Prob. 11Q
Ch. 11 - Talbot Industries is considering launching a new...Ch. 11 - The financial staff of Cairn Communications has...Ch. 11 - Allen Air Lines must liquidate some equipment that...Ch. 11 - Although the Chen Company’s milling machine is...Ch. 11 - Wendys boss wants to use straight-line...Ch. 11 - The Campbell Company is considering adding a...Ch. 11 - The president of your company, MorChuck...Ch. 11 - The Rodriguez Company is considering an...Ch. 11 - St. Johns River Shipyards welding machine is 15...Ch. 11 - Shao Industries is considering a proposed project...Ch. 11 - The Everly Equipment Company’s flange-lipping...Ch. 11 - The Bartram-Pulley Company (BPC) must decide...Ch. 11 - The Yoran Yacht Company (YYC), a prominent...Ch. 11 - Shrieves Casting Company is considering adding a...Ch. 11 - Disregard the assumptions in Part a. What is the...Ch. 11 - Prob. 3MCCh. 11 - Prob. 4MCCh. 11 - Estimate the required net operating working...Ch. 11 - Prob. 6MCCh. 11 - Calculate the project cash flows for each year....Ch. 11 - Prob. 8MCCh. 11 - What is a real option? What are some types of real...
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Depreciation -MACRS; Author: Ronald Moy, Ph.D., CFA, CFP;https://www.youtube.com/watch?v=jsf7NCnkAmk;License: Standard Youtube License