Keller FIN 515 Homework 5 Answer (2018)
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Keller FIN 515 Homework 5 Answer (2018)
Chapter 10:
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(10-8). NPVs, IRRs, and MIRRs for Independent Projects
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Edelman Engineering is considering including two pieces of equipment, a truck and an overhead pulley system, in this year’s capital budget. The projects are independent. The cash outlay for the truck is $17,100 and that for the pulley system is $22,430. The firm’s cost of capital is 14%. After-tax cash flows, including depreciation, are as follows:
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(10-9). NPVs and IRRs for Mutually Exclusive Projects
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Davis Industries must choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory. Because both forklifts perform the same function, the firm will choose only one. (They are mutually exclusive investments.) The electric-powered truck will cost more, but it will be less expensive to operate; it will cost $22,000, whereas the gas-powered truck will cost $17,500. The cost of capital that applies to both investments is 12%. The life for both types of truck is estimated to be 6 years, during which time the net cash flows for the electric-powered truck will be $6,290 per year and those for the gas-powered truck will be $5,000 per year. Annual net cash flows include depreciation expenses. Calculate the NPV and IRR for each type of truck, and decide which to recommend.
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Chapter 11:
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(11-2). Operating Cash Flow
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The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service:
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(11-3). Net Salvage Value
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Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $12 million, of which 75% has been depreciated. The used equipment can be sold today for $4 million, and its tax rate is 40%. What is the equipment’s after-tax net salvage value?
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