Principles of Managerial Finance
442 PART 3 Long-Term Investment Decisions The Problem A simple example will demonstrate the basic problem of noncomparability ca ...
CHAPTER 10 Risk and Refinements in Capital Budgeting 443 Ignoring the differences in project lives, we can see that both project ...
444 PART 3 Long-Term Investment Decisions Step 2 Divide the net present value of each project having a positive NPV by the prese ...
CHAPTER 10 Risk and Refinements in Capital Budgeting 445 Spreadsheet Use Comparison of the annualized net present values of two ...
446 PART 3 Long-Term Investment Decisions capital budgeting decision and that explicit recognition of them would probably alter ...
CHAPTER 10 Risk and Refinements in Capital Budgeting 447 follows: (1) The project would have, during the first two years, some d ...
448 PART 3 Long-Term Investment Decisions investment opportunities schedule (IOS) The graph that plots project IRRs in descendin ...
CHAPTER 10 Risk and Refinements in Capital Budgeting 449 with the highest overall present value.This is the same as maximizing n ...
450 PART 3 Long-Term Investment Decisions B, C, and A is preferable, because they maximize the present value for the given budge ...
CHAPTER 10 Risk and Refinements in Capital Budgeting 451 REVIEW OF LEARNING GOALS Understand the importance of explicitly recog- ...
452 PART 3 Long-Term Investment Decisions SELF-TEST PROBLEM (Solution in Appendix B) ST 10–1 Risk-adjusted discount rates CBA Co ...
b. Use NPV to evaluate the projects, using risk-adjusted discount rates (RADRs) to account for risk. c. Compare, contrast, and e ...
c. The firm has estimated the probabilities of achieving various ranges of cash inflows for the two projects, as shown in the fo ...
table of estimates of annual cash inflows for pessimistic, most likely, and opti- mistic results. a. Determine the range of annu ...
a. Find the net present value (NPV) of each project using the firm’s cost of capi- tal. Which project is preferred in this situa ...
CHAPTER 10 Risk and Refinements in Capital Budgeting 457 All the firm’s cash inflows have already been adjusted for taxes. a. Ev ...
a. Find the risk-adjusted NPV for each project. b. Which project, if any, would you recommend that the firm undertake? 10–11 Une ...
a. Calculate the NPV for each project over its life. Rank the projects in descend- ing order on the basis of NPV. b. Use the ann ...
460 PART 3 Long-Term Investment Decisions 10–14 Real options and the strategic NPV Jenny Rene, the CFO of Asor Products, Inc., h ...
a. Use the internal rate of return (IRR) approachto select the best group of projects. b. Use the net present value (NPV) approa ...
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