a-2. Which investment should be made?O Australian mineOU.S. mineb-1. Assume the Australian mine justifies an extra 4 percent premium over the normal cost of capital because of its riskiness andrelative uncertainty of cash flows. Calculate the new net present value given this assumption.Note: Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2decimal places.The Australian mineNet Present Value Problem 13-17 (Algo) Deferred cash flows and risk-adjusted discount rate [LO13-1]Highland Mining and Minerals Company is considering the purchase of two gold mines. Only one investment will be made. TheAustralian gold mine will cost $1,667,000 and will produce $346,000 per year in years 5 through 15 and $589,000 per year in years 16through 25. The U.S. gold mine will cost $2,005,000 and will produce $276,000 per year for the next 25 years. The cost of capital is 8percent. Use Appendix D for an approximate answer but calculate your final answers using the formula and financial calculatormethods. (Note: In looking up present value factors for this problem, you need to work with the concept of a deferred annuity for theAustralian mine. The returns in years 5 through 15 actually represent 11 years; the returns in years 16 through 25 represent 10 years.)a-1. Calculate the net present value for each project.Note: Do not round intermediate calculations and round your answers to 2 decimal places.The Australian mineThe U.S. mine.Net Present Value

The cost of an Australian mine is $1,667,000.Revenue generated $346,000 annually in years 5 through…

Answered: Highland Mining and Minerals Company is…

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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Micheal’s Machinery is a German multinational manufacturing company. Currently, Micheal’s financial planners are considering undertaking a 1-year project in the United States. The project's expected dollar-denominated cash flows consist of an initial investment of $2000 and a cash inflow the following year of $2400. Micheal’s estimates that its risk-adjusted cost of capital is 12%. Currently, 1 U.S. dollar will buy 0.7 Germany. In addition, 1-year risk-free securities in the United States are yielding 6.5%, while similar securities in Germany’s are yielding 4.5%. If this project was instead undertaken by a similar U.S.-based company with the same risk-adjusted cost of capital, what would be the net present value and rate of return generated by this project? Round your answers to two decimal places. What is the expected forward exchange rate 1 year from now? Round your answer to two decimal places. If Micheal undertakes the project, what is the net present value and rate of return of…
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Carlson Inc. is evaluating a project in India that would require a $5.5 million after-tax investment today (t = 0). The after-tax cash flows would depend on whether India imposes a new property tax. There is a 50-50 chance that the tax will pass, in which case the project will produce after-tax cash flows of $1,150,000 at the end of each of the next 5 years. If the tax doesn't pass, the after-tax cash flows will be $1,950,000 for 5 years. The project has a WACC of 12.0%. The firm would have the option to abandon the project 1 year from now, and if it is abandoned, the firm would receive the expected $1.15 million cash flow at t-1 and would also sell the property and receive $4.85 million after taxes at t-1. If the project is abandoned, the company would receive no further cash inflows from it. What is the value (in thousands) of this abandonment option? Do not round intermediate calculations. O a $87 b. 5781 c. $606 O d. 1963 Oe. $693
Highland Mining and Minerals Company is considering the purchase of two gold mines. Only one investment will be made. The Australian gold mine will cost $1,648,000 and will produce $338,000 per year in years 5 through 15 and $533,000 per year in years 16 through 25. The U.S. gold mine will cost $2,035,000 and will produce $275,000 per year for the next 25 years. The cost of capital is 12 percent. Use Appendix D for an approximate answer but calculate your final answers using the formula and financial calculator methods. (Note: In looking up present value factors for this problem, you need to work with the concept of a deferred annuity for the Australian mine. The returns in years 5 through 15 actually represent 11 years; the returns in years 16 through 25 represent 10 years.) a-1. Calculate the net present value for each project. Note: Do not round intermediate calculations and round your answers to 2 decimal places. The Australian mine The U.S. mine Net Present Value a-2. Which…
An MNC is considering establishing a two- year project in New Zealand with a USD$50 million initial investment. The required rate of return on this project is 11%. The project is expected to generate cash flows of NZ$15 million in Year 1 and NZ$35 million in Year 2, excluding the salvage value. Assume a stable exchange rate of USD$.70 per NZ$1 over the next two years. All cash flows are remitted to the parent. What is the break-even salvage value? about NZ$47 million about NZ$21 million about NZ$14 million about NZ$60 million about NZ$36 million
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Highland Mining and Minerals Co. is considering the purchase of two gold mines. Only one investment will be made. The Australian gold mine will cost $1,627,000 and will produce $329,000 per year in years 5 through 15 and $518,000 per year in years 16 through 25. The U.S. gold mine will cost $2,042,000 and will produce $280,000 per year for the next 25 years. The cost of capital is 11 percent. Use Appendix D for an approximate answer but calculate your final answers using the formula and financial calculator methods. (Note: In looking up present value factors for this problem, you need to work with the concept of a deferred annuity for the Australian mine. The returns in years 5 through 15 actually represent 11 years; the returns in years 16 through 25 represent 10 years.) a-1. Calculate the net present value for each project. (Do not round intermediate calculations and round your answers to 2 decimal places.) The Australian mine The U.S. mine a-2. Which investment should be made?…
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A company is considering two mutually exclusive expansion plans. Plan A requires a $39 million expenditure on a large-scale integrated plant that would provide expected cash flows of $6.23 million per year for 20 years. Plan B requires a $12 million expenditure to build a somewhat less efficient, more labor-intensive plant with an expected cash flow of $2.69 million per year for 20 years. The firm's WACC is 10%. Calculate each project's NPV. Enter your answers 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. Plan A: $. million Plan B: $ million Calculate each project's IRR. Round your answers to one decimal place. Plan A: % Plan B: % By graphing the NPV profiles for Plan A and Plan B, determine the crossover rate. Round your answer to one decimal place. % Calculate the crossover rate where the two projects' NPVs are equal. Round your answer to one…
Select- (increases/reduces) please show with steps thanks!
Highland and Minerals Company is considering the purchase of two gold mines. Only one investment will be made. The Australian gold mine will cost $1,648,000 and will produce $325,000 per year in years 5 through 15 and $523,000 per year in years 16 through 25. The U.S. gold mine will cost $2,047,000 and will produce $253,000 per year for the next 25 years. The cost of capital is 11 percent. Use Appendix D for an approximate answer but calculate your final answers using the formula and financial calculator methods. (Note: In looking up present value factors for this problem, you need to work with the concept of a deferred annuity for the Australian mine. The returns in years 5 through 15 actually represent 11 years; the returns in years 16 through 25 represent 10 years.) a-1. Calculate the net present value for each project. a-2. Which investment should be made? Australian mine U.S. mine b-1. Assume the Australian mine justifies an extra 2 percent premium over the normal cost of…
Drysdale Co. (a U.S. firm) is considering a new project that would result in cash flows of 5 million Argentine pesos in 1 year under the most likely economic and political conditions. The spot rate of the Argentina peso in 1 year is expected to be $.40 based on these conditions. However, it wants to also account for the 10 percent probability of a political crisis in Argentina, which would change the expected cash flows to 4 million Argentine pesos in 1 year. In addition, it wants to account for the 20 percent probability that the exchange rate may only be $.36 at the end of 1 year. These two forms of country risk are independent. Drysdale’s required rate of return is 25 percent and its initial outlay for this project is $1.4 million. Show the distribution of possible outcomes for the project’s net present value (NPV).

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