Fundamentals of Corporate Finance (4th Edition)

Chapter 9

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Operating expenses are accounted for in the period... more

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Since the goal is to assess the impact of the ... more

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Tax expense is influenced by depreciation expense... more

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Part of the cash is tied up in the net working ... more

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The effect of all sunk costs should be removed in ... more

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The advantage of using accelerated depreciation is... more

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Sensitivity analysis is a tool used to evaluate ... more

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Sensitivity analysis assesses the sensitivity of a... more

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Real options are options provided to potential ... more

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Real options have positive impacts on projects' ... more

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Incremental earnings is normally determined by the... more

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The computation of incremental earnings includes ... more

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Capital budgeting is more concerned with the cash ... more

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The net working capital provides for the needs of ... more

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Receivables and inventory can tie up cash that can... more

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When projects cause externalities in the revenues ... more

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Using accelerated depreciation leads to a higher ... more

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Sensitivity analysis keeps all assumptions, except... more

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$2,010,000 ; Determine the total cost of the fixed... more

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$513,500 ; Determine the incremental earnings ... more

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$400,000 ; Determine the increase in number of ... more

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; Determine the incremental earnings for Year 1 (... more

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$175,000 ; Determine the tax shield from ... more

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$1,300,000 ; Determine the free cash flows for the... more

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The after-tax earnings is $240,000.The free cash ... more

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The after-tax earnings is $1,170,000.The free cash... more

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$2,523,500 ; Determine the increase in free cash ... more

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⧍NWC1-2 = $5 million⧍NWC2-3 = $6 million⧍NWC3-4... more

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⧍NWC1-2 =$263⧍NWC2-3 = $(237)⧍NWC3-4 = $(1,363) ; ... more

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$140,000,000 ; Determine the free cash flow.  ; more

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Incremental earnings will decrease by $120,000 per... more

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The company should purchase the new machine to ... more

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($150,000) ; Determine the total initial cash ... more

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($78,000) ; Identify the following variables:Cost ... more

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$655,000 ; Identify the following variables:... more

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Yes, the cost of taking the new order is the after... more

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The company did not make any new investment for ... more

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Design costs are sunk costs and should not be ... more

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As compared to the straight line method, in the ... more

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Global Explanation: The new equipment has an NPV ... more

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; The NPV of the new project is $155,827,080. The... more

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; The NPV of the new project is $70,453. The ... more

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The spreadsheet calculates the free cash flow (FCF... more

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The net present value of the new project is $57.27... more

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Real options are a choice and not an obligation. A... more

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The costly machine increases production capacity. ... more

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The real option is to either sell the machine or ... more

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; The spreadsheet calculates the net present ... more

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