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
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…
Abbott Mining Systems wants to determine whether it should upgrade a piece of equipment used in deep mining operations in one of its international operations now or later. If the com- pany selects plan A, the upgrade will be purchased now for $200,000. However, if the com- pany selects plan 1, the purchase will be deferred for 3 years when the cost is expected to rise to $300,000. Abbott is ambitious; it expects a real MARR of 12% per year. The inflation rate in the country has averaged 3% per year. From only an economic perspective, determine whether the company should purchase now or later (a) when inflation is not considered and (b) when inflation is considered.
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…
You own a coal mining company and are considering opening a new mine. The mine will cost $119.5 million to open. If this money is spent immediately, the mine will generate $21.5 million for the next 10 years. After that, the coal will run out and the site must be cleaned and maintained at environmental standards. The cleaning and maintenance are expected to cost $1.6 million per year in perpetuity. What does the IRR rule say about whether you should accept this opportunity? If the cost of capital is 7.6%, what does the NPV rule say? NPV ($ mil पात 10 15 et Discount Rate (%) What does the IRR rule say about whether you should accept this opportunity? (Select the best choice below.) A. Accept the opportunity because the IRR is greater than the cost of capital. B. There are two IRRS, so you cannot use the IRR as a criterion for accepting the opportunity. O C. Reject the opportunity because the IRR is lower than the 7.6% cost of capital. D. The IRR is r= 11.46%, so accept the opportunity.…
You are considering constructing a new plant in a remote wilderness area to process the ore from a planned mining operation. You anticipate that the plant will take a year to build and cost $104 million upfront. Once built, it will generate cash flows of $18 million per year starting two years from today. In 21 years, after its 20th year of operation, the mine will run out of ore and you expect to pay $256 million to shut the plant down and restore the area to its pristine state. Using a cost of capital of 13%: a. What is the NPV of the project? b. Is using the IRR rule reliable for this project? Explain. c. What are the IRRs of this project? a. What is the NPV of the project?
The management of Niagra National Bank is considering an investment in automatic teller machines. The machines would cost $124,200 and have a useful life of seven years. The bank’s controller has estimated that the automatic teller machines will save the bank $27,000 after taxes during each year of their life (including the depreciation tax shield). The machines will have no salvage value. Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) Required: Compute the payback period for the proposed investment. (Round your answer to 1 decimal place.)

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