For this Master It! assignment, refer to the Goodweek Tires, Inc., case at the end of this
Question:
For this Master It! assignment, refer to the Goodweek Tires, Inc., case at the end of this chapter. For your convenience, we have entered the relevant values such as the price and variable costs in the case on the next page. For this project, answer the following questions:
a. What is the profitability index of the project?
b. What is the IRR of the project?
c. At what OEM price would Goodweek Tires be indifferent to accepting the project? Assume the replacement market price is constant.
d. At what level of variable costs per unit would Goodweek Tires be indifferent to accepting the project?
Step by Step Answer:
a 0122 b 122 c 837500 OEM price d 520 variable costs per unit ...View the full answer
Corporate Finance
ISBN: 978-1259918940
12th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
Related Video
The internal rate of return, or IRR, is a metric used to measure the profitability of an investment. It is the discount rate that makes the net present value of an investment equal to zero. To calculate the IRR, we need to know the investment\'s cash flows. These are the inflows and outflows of cash that will result from the investment. For example, an investment in a property might have cash outflows for the purchase price, closing costs, and any renovations, and cash inflows from rent and eventual sale of the property. The IRR is the discount rate at which the NPV of the investment is equal to zero. There are many ways to calculate IRR, from simple spreadsheet functions to more complex financial modeling software. It\'s worth noting that IRR can be a bit tricky when it comes to projects that don\'t have a consistent cash flow over time. These types of investments are known as \"irregular cash flow\" and the IRR might be misleading or not suitable to calculate. There are other metrics to evaluate these investments such as Modified Internal Rate of Return (MIRR) which is a variation of IRR and is used to get more accurate results.
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