c. Should this project be undertaken?-Select-If so, should the firm do the mitigation?I. Under the assumption that all costs have been considered, the company would not mitigate forthe environmental impact of the project since its IRR without mitigation is greater than its IRRwhen mitigation costs are included in the analysis.II. Under the assumption that all costs have been considered, the company would mitigate for theenvironmental impact of the project since its NPV with mitigation is greater than its NPV whenmitigation costs are not included in the analysis.III. Under the assumption that all costs have been considered, the company would not mitigate forthe environmental impact of the project since its NPV without mitigation is greater than its NPVwhen mitigation costs are included in the analysis.IV. Under the assumption that all costs have been considered, the company would mitigate for theenvironmental impact of the project since its IRR with mitigation is greater than its IRR whenmitigation costs are not included in the analysis.V. Under the assumption that all costs have been considered, the company would not mitigate forthe environmental impact of the project since its NPV with mitigation is greater than its NPVwhen mitigation costs are not included in the analysis.-Select- ✓ A mining company is considering a new project. Because the mine has received a permit, the projectwould be legal; but it would cause significant harm to a nearby river. The firm could spend anadditional $11 million at Year 0 to mitigate the environmental problem, but it would not be required todo so. Developing the mine (without mitigation) would require an initial outlay of $69 million, and theexpected cash inflows would be $23 million per year for 5 years. If the firm does invest in mitigation,the annual inflows would be $24 million. The risk-adjusted WACC is 12%.a. Calculate the NPV and IRR with mitigation. Enter your answer for NPV in millions. For example, ananswer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Roundyour answers to two decimal places.NPV: $millionIRR:%Calculate the NPV and IRR without mitigation. Enter your answer for NPV in millions. For example,an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations.Round your answers to two decimal places.NPV: $millionIRR:b. How should the environmental effects be dealt with when this project is evaluated?I. The environmental effects if not mitigated could result in additional loss of cash flows and/orfines and penalties due to ill will among customers, community, etc. Therefore, even though themine is legal without mitigation, the company needs to make sure that they have anticipated allcosts in the "no mitigation" analysis from not doing the environmental mitigation.II. The environmental effects should be ignored since the mine is legal without mitigation.III. The environmental effects should be treated as a sunk cost and therefore ignored.IV. The environmental effects if not mitigated would result in additional cash flows. Therefore, sincethe mine is legal without mitigation, there are no benefits to performing a "no mitigation"analysis.%-Select-V. The environmental effects should be treated as a remote possibility and should only beconsidered at the time in which they actually occur.c. Should this project be undertaken?-Select-If so, should the firm do the mitigation?I. Under the assumption that all costs have been considered, the company would not mitigate forthe environmental impact of the project since its IRR without mitigation is greater than its IRR---TAT — — _------

Here, Initial Outlay is $69 million Addition Outlay for Mitigation is $11 million Cash Inflow in…

Answered: A mining company is considering a new…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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You are a financial analyst employed by the Arlo Construction Company. Arlo Construction is considering submitting a bid to construct a facility for a golf club and has asked you about the feasibility of constructing the facility. The investment in fixed assets necessary will require $318,000 and be depreciated straight-line to zero over the 6-year life of the project with no salvage value. Annual cash costs associated with the project are estimated to be $198,200. Arlo Construction has an effective tax rate of 35 percent. Suppose Arlo requires annual operating cash flows of $92,000.
U.S. Steel is considering a plant expansion to produce austenitic, precipitation hardened, duplex, and martensitic stainless steel round bars that is expected to cost $13 million now and another $10 million 1 year from now. If total operating costs will be $1.2 million per year starting 1 year from now, and the estimated salvage value of the plant is virtually zero, how much must the company make annually in years 1 through 10 to recover its investment plus a return of 15% per year?
XYZ operates indoor tracks. The firm is evaluating the Santa Fe project, which would involve opening a new indoor track in Santa Fe. During year 1, XYZ would have total revenue of $168,000 and total $78,000 if it pursues the Santa Fe project, and the firm would have total revenue of $156,000 and total costs of $71,400 if it does not pursue the Santa Fe project. Depreciation firm would $76,400 if the firm pursues the project and $39,100 if the firm does not pursue the project. The tax rate is 44.70%. What is the relevant operating cash flow (OCF) for year 1 of the Santa Fe project that should use in its NPV analysis of the Santa Fe project? taken by the O $29,640.70 (plus or minus $1) O $43,900.00 (plus or minus $1) O $24,240.70 (plus or minus $1) O $19,659.30 (plus or minus $1) O None of the above is within $1 of the correct answer costs of be XYZ
After discovering a new silver vein in the X Mountains, BHP Mining Corporation must decidewhether to go ahead and develop the deposit. The most cost effective method of mining silver issulfuric acid extraction, a process that could result in environmental damage. Before proceedingwith the extraction, BHP must spend $1,000,000 for new mining equipment and pay $165,000for its installation. The silver mined will net the firm an estimated $350,000 each year for the 5-year life of the vein. BHP’s cost of capital is 13%. For the purposes of this problem, assume thatthe cash inflows occur at the end of the year.Requirement:a. What are the project’s NPV and IRR?b. Should this project be undertaken if environmental impacts were not a consideration?
U.S. Steel is considering a plant expansion to produce austenitic, precipitation hardened, duplex, and martensitic stainless steel round bars that is expected to cost $17 million now and another $10 million 1 year from now. If total operating costs will be $1.4 million per year starting 1 year from now, and the estimated salvage value of the plant is virtually zero, how much must the company make annually in years 1 through 11 to recover its investment plus a return of 23% per year? The company must make S million annually in years 1 through 11 to recover its investment plus a return of 23% per year.
I got this wrong.
A mining company is considering a new project. Because the mine has received a permit, the project would be legal; but it would cause significant harm to a nearby river. The firm could spend an additional $9.66 million at Year 0 to mitigate the environmental problem, but it would not be required to do so. Developing the mine (without mitigation) would require an initial outlay of $57 million, and the expected cash inflows would be $19 million per year for 5 years. If the firm does invest in mitigation, the annual inflows would be $20 million. The risk-adjusted WACC is 12%. a. Calculate the NPV and IRR with mitigation. Enter your answer for NPV in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your answers to two decimal places. NPV: $ IRR: % million Calculate the NPV and IRR without mitigation. Enter your answer for NPV in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round…
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A mining company is considering a new project. Because the mine has received a permit, the project would be legal; but it would cause significant harm to a nearby river. The firm could spend an additional $10 million at Year 0 to mitigate the environmental problem, but it would not be required to do so. Developing the mine (without mitigation) would require an initial outlay of $60 million, and the expected cash inflows would be $20 million per year for 5 years. If the firm does invest in mitigation, the annual inflows would be $21 million. The risk-adjusted WACC is 15%. Should this project be undertaken? 1. The project should not be undertaken under the "no mitigation" assumption. 2. The project should be undertaken only under the " no mitigation" assumption. 3. The project should not be undertaken under the "mitigation" assumption. 4. Even when mitigation is considered the project has a positive NPV, so it should be undertaken. 5. Even when mitigation is considered the project has a…
An electric utility is considering a new power plant in northern Arizona. Power from the plant would be sold in the Phoenix area, where it is badly needed. Because the firm has received a permit, the plant would be legal; but it would cause some air pollution. The company could spend an additional $40 million at Year 0 to mitigate the environmental problem, but it would not be required to do so. The plant without mitigation would require an initial outlay of $269.87 million, and the expected cash inflows would be $90 million per year for 5 years. If the firm does invest in mitigation, the annual inflows would be $93.62 million. Unemployment in the area where the plant would be built is high, and the plant would provide about 350 good jobs. The risk adjusted WACC is 16%. Calculate the NPV and IRR with mitigation. Enter your answer for NPV in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative values, if any, should be indicated by a minus sign. Do not…
NUBD Co. has an opportunity to acquire a new machine to replace one of its present machines. The new machine would cost P90,000, have a five year life, and no estimated salvage value. Variable operating costs would be P100,000 per year. The present machine has a book value of P50,000 and a remaining life of five years. Its disposal value now is P5,000, but it would be zero after five years. Variable operating costs would be P125,000 per year. Ignore present value calculations and income taxes. Considering the five years in total, what would be the difference in profit before income taxes by acquiring the new machine as opposed to retaining the present one?
Consider a firm that mines minerals in northern BC. The initial cost to develop the mine is $10 Million. The cost to operate the mine is $5 Million per year. The mine operates only three years starting one year after its development. However, the mine pollutes a river causing a decline of the salmon population. In response, the net benefits from salmon fishing decline from $1 Million to $0.5 Million per year. The damage to the river lasts forever. Assume an interest rate of 10%. What is the present value of the private costs? Type your answer... Consider a firm that mines minerals in northern BC. The initial cost to develop the mine is $10 Million. The cost to operate the mine is $5 Million per year. The mine operates only three years starting one year after its development. However, the mine pollutes a river causing a decline of the salmon population. In response, the net benefits from salmon fishing decline from $1 Million to $0.5 Million per year starting one year after the…

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