3. A mining company using a 17% MARR is evaluating a new site for nickel mining. The site acquisition and equipment expenses are expected to cost P485M. Net annual receipts are estimated at P95M for the next 12 years after which the mine will be depleted. Clean up and biodiversity restoration is anticipated to cost P18M per year for the succeeding three years. Assess this venture using the ERR method.

3. A mining company using a 17% MARR is evaluating a new site for nickel mining. The site acquisition and equipment expenses are expected to cost P485M. Net annual receipts are estimated at P95M for the next 12 years after which the mine will be depleted. Clean up and biodiversity restoration is anticipated to cost P18M per year for the succeeding three years. Assess this venture using the ERR method.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter10: The Basics Of Capital Budgeting: Evaluating Cash Flows

Section: Chapter Questions

Problem 19P

See similar textbooks

Similar questions

A mining company is deciding whether to open a strip mine,which costs $2 million. Cash inflows of $13 million would occur at the end of Year 1. Theland must be returned to its natural state at a cost of $12 million, payable at the end ofYear 2.a. Plot the project’s NPV profile.b. Should the project be accepted if WACC = 10%? If WACC = 20%? Explain your reasoning.c. Think of some other capital budgeting situations in which negative cash flows duringor at the end of the project’s life might lead to multiple IRRs.d. What is the project’s MIRR at WACC = 10%? At WACC =20%? Does MIRR lead tothe same accept/reject decision for this project as the NPV method? Does the MIRRmethod always lead to the same accept/reject decision as NPV? (Hint: Considermutually exclusive projects that differ in size.)
A mining company is deciding whether to open a strip mine, which costs $2.5 million. Cash inflows of $13 million would occur at the end of Year 1. The land must be returned to its natural state at a cost of $11.5 million, payable at the end of Year 2. Plot the project's NPV profile. The correct sketch is -Select-ABCDItem 1 .Should the project be accepted if WACC = 10%?-Select-YesNoItem 2 Should the project be accepted if WACC = 20%?-Select-YesNoItem 3Think of some other capital budgeting situations in which negative cash flows during or at the end of the project's life might lead to multiple IRRs. The input in the box below will not be graded, but may be reviewed and considered by your instructor. What is the project's MIRR at WACC = 10%? Round your answer to two decimal places. Do not round your intermediate calculations.% What is the project's MIRR at WACC = 20%? Round your answer to two decimal places. Do not round your intermediate calculations.% Does MIRR lead to the same…
V1. A mining company using a 17% MARR is evaluating a new site for nickel mining. The site acquisition and equipment expenses are expected to cost P485M. Net annual receipts are estimated at P95M for the next 12 years after which the mine will be depleted. Clean up and biodiversity restoration is anticipated to cost P18M per year for the succeeding three years. Assess this venture using the ERR method. (ANSWER: 16.72%)
a potential project is currently under review an investment of $87000 would be necessary for equipment. the annual revenues and expenses are expected to be $40000 and 19000 each year respectively over the 6-year project period. the salvage value of the equipment at the end of the project period is projected to be $17,000. Assume a MARR of 9%. find the B-C(to the nearest cent).
6. An elective project is currently under review. One alternative requires an initial investment of $116,000 for equipment. The profit is expected to be $28,000 each year, over the 6-year project period. The salvage value of the equipment at the end of the project period is projected to be $22,000. A second alternative requires an initial investment of $60,000 for equipment. The profit is projected to be $16,000 each year, over the 6-year project period. The salvage value of the equipment at the end of the project period is projected to be $14,000. The IRR of this alternative is 18.69%. Determine which alternative is preferred using the appropriate IRR method. Assume a MARR of 10%. Justify your recommendation, based on this method.
Mountain Frost is considering a new project with an initial cost of $295,000. The equipment will be depreciated on a straight-line basis to a zero book value over the four-year life of the project. The projected net income for each year is $21,800, $22,700, $24,600, and $18,700, respectively. What is the average accounting return? Multiple Choice O 13.64% O 14.88% 7.44% O 11.16% 15.94%
It is estimated that an investment alternative with an initial investment cost of 250000 TL will generate annual revenues of 85000 TL and annual expenses of 20000 TL. It is expected to have a scrap value of 95000 TL at the end of its 7-year life. Find out how sensitive the investment decision of this investment alternative is to its revenues. (MARR: %10) Select one: a. 0.32294 b. 0.48225 c. 0.05634 d. 0.27838 e. 0.082902 f. 0.1719 g. 0.52003 h. 0.37235
The company is considering a project that requires an initial investment of $120M to build a new plant, and purchase equipment. The investment will be depreciated on diminishing value basis at 18% per annum. The new plant will be built on some of the company's land which has a current, after-tax market value of $9.5M. The company will produce units at a cost of $260 each and will sell them for $390 each. There are annual fixed costs of $0.5M. Unit sales are expected to be 270,000 each year for the next 10 years, at which time the project will be abandoned. At that time, the plant and equipment is expected to be worth $24M (before tax) and the land is expected to be worth $13M (after tax). To supplement the production process, the company will need to purchase $5M worth of inventory. That inventory will be depleted during the final year of the project. The required return is 12%. The company's marginal tax rate is 40%. You are required to calculate the project’s: (C) Payback period, the…
The company is considering a project that requires an initial investment of $120M to build a new plant, and purchase equipment. The investment will be depreciated on diminishing value basis at 18% per annum. The new plant will be built on some of the company's land which has a current, after-tax market value of $9.5M. The company will produce units at a cost of $260 each and will sell them for $390 each. There are annual fixed costs of $0.5M. Unit sales are expected to be 270,000 each year for the next 10 years, at which time the project will be abandoned. At that time, the plant and equipment is expected to be worth $24M (before tax) and the land is expected to be worth $13M (after tax). To supplement the production process, the company will need to purchase $5M worth of inventory. That inventory will be depleted during the final year of the project. The required return is 12%. The company's marginal tax rate is 40%. You are required to calculate the project’s: (D) ARR (to two decimal…
The company is considering a project that requires an initial investment of $120M to build a new plant, and purchase equipment. The investment will be depreciated on diminishing value basis at 18% per annum. The new plant will be built on some of the company's land which has a current, after-tax market value of $9.5M. The company will produce units at a cost of $260 each and will sell them for $390 each. There are annual fixed costs of $0.5M. Unit sales are expected to be 270,000 each year for the next 10 years, at which time the project will be abandoned. At that time, the plant and equipment is expected to be worth $24M (before tax) and the land is expected to be worth $13M (after tax). To supplement the production process, the company will need to purchase $5M worth of inventory. That inventory will be depleted during the final year of the project. The required return is 12%. The company's marginal tax rate is 40%. You are required to calculate the project’s: (A) NPV(B) IRR (% to…
The company is considering a project that requires an initial investment of $120M to build a new plant, and purchase equipment. The investment will be depreciated on diminishing value basis at 18% per annum. The new plant will be built on some of the company's land which has a current, after-tax market value of $9.5M. The company will produce units at a cost of $260 each and will sell them for $390 each. There are annual fixed costs of $0.5M. Unit sales are expected to be 270,000 each year for the next 10 years, at which time the project will be abandoned. At that time, the plant and equipment is expected to be worth $24M (before tax) and the land is expected to be worth $13M (after tax). To supplement the production process, the company will need to purchase $5M worth of inventory. That inventory will be depleted during the final year of the project. The required return is 12%. The company's marginal tax rate is 40%. You are required to calculate the project’s:ARR (to two decimal…
Candlex Ltd Co is appraising an investment project which has an expected life of four years and which will not be repeated. The initial investment, payable at the start of the first year of operation, is K5 million. Scrap value of K500, 000 is expected to arise at the end of four years. There is some uncertainty about what price can be charged for the units produced by the investment project, as this is expected to depend on the future state of the economy. The following forecast of selling prices and their probabilities has been prepared: Future economic state Weak Medium Strong Probability of future economic state 35% 50% 15% Selling price in current price terms K25 per unit K30 per unit K35 per unit These selling prices are expected to be subject to annual inflation of 4% per year, regardless of which economic state prevails in the future. Forecast sales and production volumes, and total nominal variable costs, have already been forecast, as follows: Year…