Go to the live Excel spreadsheets versions of Tables (a, b and c) at www.mhhe.com/bma. Reevaluate the
Question:
Go to the “live†Excel spreadsheets versions of Tables (a, b and c) at www.mhhe.com/bma. Reevaluate the NPV of the proposed polyzone project under each of the following assumptions. What’s the right management decision in each case?
a. Spread in year 4 holds at $1.20 per pound.
b. The U.S. chemical company can start up polyzone production at 40 million pounds in year 1 rather than year 2.
c. The U.S. company makes a technological advance that reduces its annual production costs to $25 million. Competitors’ production costs do not change.
TABLE (a Investment Pocton, millions of pounds per year00 Spread, 5 per pound Net revenues Production costs Transport Other costs Cash flow Year 0 100 Year 1 Year 2 Years 3-10 4080 1.20 48 30 1.20 1.20 1.20 96 20 20 -100 NPV (at r 8%) S63.56 million TABLE (b) Year 2 YearO Tear Years 3-10 Investment 100 Production, millions of pounds per year Spread, S per pound Net revenues Production costs Transport Other costs Cash flow 480 95 95 38 30 95 95 0 0 0 0 -100 76 0 20 20 12 +26 NPV (at r = 896) = 0 TABLE (c) Investment Year O Year 1 Year 2 Year 3 Year 4 Years 5-10 100 Production, millions of pounds per year 004080 80 80 1.20 48 30 Spread, $ per pound Net revenues Production costs Transport Other costs Cash flow 1.20 0 0 0 0 1.20 0 0 1.20 1.10 0.95 76 30 96 30 20 20 -100 20 38 30 18 NPV (at r# 896) -9.8
Step by Step Answer:
Use the information from Table 113 under each of the three scenarios above Years 0 1 2 3 4 5 10 Inve...View the full answer
Principles of Corporate Finance
ISBN: 978-0077404895
10th Edition
Authors: Richard A. Brealey, Stewart C. Myers, Franklin Allen
Related Video
NPV stands for \"Net Present Value,\" which is a financial concept used to determine the value of an investment or project. It measures the difference between the present value of cash inflows and the present value of cash outflows over a given period of time, using a specific discount rate. To calculate the NPV of an investment, you need to first estimate the cash inflows and outflows associated with the investment, and then discount them back to their present values using a discount rate. The discount rate represents the cost of capital or the expected rate of return required by investors. The formula for calculating NPV is: NPV = sum of (cash inflows / (1 + discount rate)^t) - sum of (cash outflows / (1 + discount rate)^t) Where: Cash inflows: the expected cash received from the investment Cash outflows: the expected cash paid out for the investment Discount rate: the required rate of return or the cost of capital t: the time period in which the cash flow occurs If the NPV is positive, it means that the investment is expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a good investment. If the NPV is negative, it means that the investment is not expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a bad investment.
Students also viewed these Corporate Finance questions
-
Reevaluate the NPV of the proposed polyzone project under each of the following assumptions. Follow the format of Table 11.3. What?s the right management decision in each case? a. Competitive entry...
-
A company that manufactures three products a b and c requires two raw materials - labor and material - need to determine the optimal production that maximizes its total profit. A linear program was...
-
Go to the live Excel spreadsheet versions of Tables 6.1, 6.5, and 6.6 at www.mhhe.com/bma and answer the following questions. a. How does the guano projects NPV change if IM&C is forced to use the...
-
Pam has a $25,900 basis (including her share of debt) in her 50 percent partnership interest in the Meddoc Partnership before receiving any distributions. This year Meddoc makes a current...
-
In a study comparing various methods of gold plating, 7 printed circuit edge connectors were gold-plated with control-immersion tip plating. The average gold thickness was 1.5 m, with a standard...
-
An oil preheater consists of a single tube of \(10-\mathrm{mm}\) diameter and 5-m length, with its surface maintained at \(180^{\circ} \mathrm{C}\) by swirling combustion gases. The engine oil (new)...
-
What roles do supernatural beings and powers play in religion?
-
Stalberg Company's beginning inventory and purchases during the fiscal year ended December 31, 20--, were as follows: There are 10 units of inventory on hand on December 31. 1. Calculate the total...
-
4. Create a formula in cell C6, replacing the number 3, which calculates the next leg needed to be added to the legs in column B of the Driving Itinerary worksheet. As the user adds legs, the number...
-
Each of the flowchart segments in Figure 3-24 is unstructured. Redraw each segment so that it does the same processes under the same conditions, but is structured. a. D Yes NO Yes B? E? No F H C. Yes...
-
How would your answer to Problem 10 change if technological improvements reduce the cost of new BG production facilities by 3% per year? Thus a new plant built in year 1 would cost only 25 (1 .03) =...
-
The Cambridge Opera Association has come up with a unique door prize for its December (2013) fund-raising ball: Twenty door prizes will be distributed, each one a ticket entitling the bearer to...
-
For an arc length s, area of sector A, and central angle of a circle of radius r, find the indicated quantity for the given values. s = 0.3913 mi, r = 0.9449 mi, A = ?
-
Differentiate extensively democratic from autocratic leadership. a. Cite situation when democratic leadership could be effective? b. Are there cases where autocratic leadership is applicable? Why?
-
A data set has a mean of x = 4023 and a standard deviation of 105. Find the z-score for each of the following. (a) x3840 (b) -4200 (c) x=4300 (d) x = 4030
-
What are the advantages and disadvantages of autocratic leadership? Cite an example from your own experience that describes autocratic leadership. Your response should be at least 200 words in...
-
Imagine that you are involved in a car accident with a UPS truck and your injuries are $200,000 and the injuries to the UPS driver are only $200,000. You are 60% at fault and the UPS driver is 40% at...
-
What are the main features of an Autocratic leadership style?
-
Turn to the annual report of a listed company which you have used for activities in previous chapters. Find every item of information about liabilities. (Start with the financial statements and notes...
-
The liquidliquid extractor in Figure 8.1 operates at 100F and a nominal pressure of 15 psia. For the feed and solvent flows shown, determine the number of equilibrium stages to extract 99.5% of the...
-
A training program is effective for 80 % of the students who are strongly motivated, but it is effective on only 60 % of the students who are not strongly motivated. Assume that only 60 % of the...
-
Look one more time at Table 4.1, which applies the DCF stock valuation formula to Fledgling Electronics. The CEO, having just learned that stock value is the present value of future dividends,...
-
Look again at Tables 4.3 (Growth-Tech) and 4.7 (Concatenator Manufacturing). Note the discontinuous increases in dividends and free cash flow when asset growth slows down. Now look at your answer to...
-
The constant-growth DCF formula is sometimes written as where BVPS is book equity value per share, b is the plowback ratio, and ROE is the ratio of earnings per share to BVPS. Use this equation to...
-
For its three investment centres, Stahl Company accumulates the following data: Centre I Centre II Centre III Sales $1,966,000 $4,029,000 $3,927,000 Controllable margin 1,096,700 2,145,960 3,858,880...
-
What is a mirror's radius of curvature if cars 1 9 . 0 m away appear 0 . 3 7 their normal size? Express your answer to two significant figures and include the appropriate units.
-
Reading Coming to a new awareness of organizational culture, Edgar H.Schein: https://docs.google.com/document/d/15yKbiEIwu47U1OnyjYevwz9ly42o2PCi0x-Zz_4C-po/edit In the assigned reading from the...
Study smarter with the SolutionInn App