Engineering Economy 16th Edition by William Sullivan ,Elin Wicks, Koelling,

Exercise 6

Explain the various degrees of dependency among two or more projects. If one or more projects seem desirable and are complementary to a given project, should those complementary projects be included in a proposal package or kept separate for review by management (Problem)
Problem
The price to earnings ( P/E ) ratio is an after-tax metric reflecting growth potential of the common stock of a corporation. P is the selling price (per share) of the common stock, and E is the after-tax earnings per year of a share of stock. A high P/E ratio, for example, indicates that a firm is in a high-growth industry (such as biotechnology) and that annual earnings are not as important to investors as the growth rate of the price of common stock is. Because a corporation can be assumed to have an indefinitely long life, the P/E ratio can be likened to the ( P/A , i %, N ) factor when N approaches infinity. For a certain transportation company, the P/E ratio is 12. What is the implied IRR for this relatively stable company (Problem 1)
Problem 1
Refer to the associated graph. Identify when the WACC approach to project acceptability agrees with the CAPM approach. When do recommendations of the two approaches differ Explain why.