Principles of Managerial Finance

FIGURE 9.2 Calculation of NPVs for Bennett Company’s Capital Expenditure Alternatives Time lines depicting the cash flows and NP ...

CHAPTER 9 Capital Budgeting Techniques 403 10924.40  45000 CF 0 CF 1 N I NPV CF 2 CF 3 28000 12000 10000 3 10 Solution Input Fu ...

FIGURE 9.3 Calculation of IRRs for Bennett Company’s Capital Expenditure Alternatives Time lines depicting the cash flows and IR ...

CHAPTER 9 Capital Budgeting Techniques 405 EXAMPLE We can demonstrate the internal rate of return (IRR) approach using Bennett C ...

406 PART 3 Long-Term Investment Decisions In Practice Answering the question “Does the company use investors’ money wisely?” is ...

CHAPTER 9 Capital Budgeting Techniques 407 net present value profile Graph that depicts a project’s NPVs for various discount ra ...

408 PART 3 Long-Term Investment Decisions intermediate cash inflows Cash inflows received prior to the termination of a project. ...

CHAPTER 9 Capital Budgeting Techniques 409 TABLE 9.5 Reinvestment Rate Comparisons for a Projecta Reinvestment rate Number of ye ...

410 PART 3 Long-Term Investment Decisions TABLE 9.6 Project Cash Flows After Reinvestment Reinvestment Rate 10% 15% Initial inve ...

CHAPTER 9 Capital Budgeting Techniques 411 For example, see Harold Bierman, Jr., “Capital Budgeting in 1992: A Survey,” Financi ...

412 PART 3 Long-Term Investment Decisions REVIEW OF LEARNING GOALS Understand the role of capital budgeting tech- niques in the ...

CHAPTER 9 Capital Budgeting Techniques 413 TABLE 9.8 Summary of Key Formulas/Definitions and Decision Criteria for Capital Budge ...

414 PART 3 Long-Term Investment Decisions LG2 LG3 LG4 LG5 LG6 LG2 LG2 with regard to the reinvestment of intermediate cash inflo ...

CHAPTER 9 Capital Budgeting Techniques 415 LG3 LG2 LG3 LG3 choose between two alternative ones. The first machine requires an in ...

416 PART 3 Long-Term Investment Decisions LG3 LG3 LG3 LG3 9–6 Net present value—Independent projects Using a 14% cost of capital ...

CHAPTER 9 Capital Budgeting Techniques 417 LG2 LG3 LG4 under consideration. The relevant cash flows associated with each are sho ...

418 PART 3 Long-Term Investment Decisions LG4 LG3 LG4 LG4 9–12 IRR—Mutually exclusive projects Bell Manufacturing is attempting ...

CHAPTER 9 Capital Budgeting Techniques 419 LG2 LG3 LG4 LG2 LG3 LG3 c. Would you recommend that the firm accept or reject the pro ...

420 PART 3 Long-Term Investment Decisions LG3 LG4 LG5 LG2 LG3 LG4 LG5 LG6 a. Calculate the payback period for the proposed inves ...

CHAPTER 9 Capital Budgeting Techniques 421 LG2 LG3 LG4 LG5 LG6 LG2 LG3 LG4 b. Calculate the net present value (NPV) of each proj ...