Problem 9.14 – Problems with IRR (Howell Petroleum, Inc.)
Fundamentals of Corporate Finance
Ross, Westerfield, and Jordan
13th Edition
Find the NPV of the project then the two IRR’s.
Find the NPV of the project then the two IRR’s.
Calculate the net present value (NPV) of a project involving an investment in a sausage system, considering its initial installed cost, straight-line depreciation to zero over its life (OR 100% bonus depreciation), scrap value at the end of the project, annual savings in pretax operating costs, and initial investment in net working capital. Use the relevant tax rate and discount rate and determine the NPV for the sausage system.
Given cash flows for years 0 through 3, determine the profitability index at three different discount rates.
Given the cash flows for the following years, the expected FCF growth rate, and WACC… find the horizon/continuing value and the firm’s market value today – then given debt and shares outstanding… estimate the current price per share
Given the stock price, recently paid dividend, and expected dividend growth rate… at what constant rate is the stock expected to grow after a certain year?
Calculate the IRR for the project considering the initial investment, depreciation, salvage value, annual cost savings, changes in working capital, and tax rate.
With the required return, find the profitability index and NPV for the projects. After, figure out which project to accept for each.
Find the upcoming dividends, determine the PV of the dividend stream, and the most you would be willing to pay for the stock based on your analysis.
Given the cash flows and required return, figure out the payback period, discounted payback period, NPV, IRR, and profitability index. You then find which investment you’ll choose for each and decide which investment to choose overall.
Determine the NPV of the computer-based system given various pretax cost savings. Should the project be accepted? Finally, determine the level of pretax savings whereby you would be indifferent between accepting and rejecting the project.