W10FIN3300_CH10_Ans

W10FIN3300_CH10_Ans - FIN 3300-03 Winter 2010 Problem 1...

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FIN 3300-03 Solutions of Chapter 10 Exercise Problems Winter 2010 Problem 1 (1) S ABE = (F + Depr) / (1 – VC/S) = (1.2m + 0.5m)/(1 – 0.75) = $6.8 million (2) EAC of initial investment: 6 10 PMT 688,822 S NPV = [(1 – T)(F) + EAC – (T)(Depr)]/[(1 – T)(1 – VC/S)] S NPV = [(1-0.35)(1.2m)+688,822 – (.35)(0.5m)]/(1 – 0.35)(1 – 0.75) = $7,961,982 Problem 2 (1) EBIT = S – V – F – Depr. = 5000 - .7(5000) – 700 – 300 = 500
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