Problem 5-26 Calculating IRRThe Utah Mining Corporation is set to open a gold mine near Provo, Utah. According tothe treasurer, Monty Goldstein, "This is a golden opportunity." The mine will cost$3,400,000 to open and will have an economic life of 11 years. It will generate a cashinflow of $445,000 at the end of the first year, and the cash inflows are projected togrow at 8 percent per year for the next 10 years. After 11 years, the mine will beabandoned. Abandonment costs will be $500,000 at the end of Year 11.a. What is the IRR for the gold mine? (Do not round intermediate calculations and enteryour answer as a percent rounded to 2 decimal places, e.g., 32.16.)IRRAnswer is complete but not entirely correct.14.56 X %

IRR is regarded as one of the most important Capital Budgeting Techniques.Internal rate of return…

Answered: Problem 5-26 Calculating IRR The Utah…

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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Question 10.2 Shooting Star, Inc. is considering a project that would have an eight -year life and would require a $2,000,000 investment in equipment. At the end of ten years, the project would terminate and the equipment would have no salvage value. The project would provide net income each year as follows: Sales $2,000,000 Less: Variable Expenses $1,600,000 Contribution Margin $400,000 Less: Fixed Expenses $200,000 Net Income $200,000 All of the above items, except for depreciation of $200,000 a year, represent cash flows. The depreciation is included in the fixed expenses. The company's required rate of return is 10%. (Ignore income taxes in this problem.) Required: What is the project's net present value? What is the project's internal rate of return? What is the project's payback period? What is the project's simple rate of…
Question 5 An investment of $50,000 is made to purchase machinery that will allow us to manufacture a new product. The annual expenses to make the product are (5,000 + 5x) and the revenues from the product are 30 x, where x = the number of products sold each year. How many products must be sold per year, x, to break even? Consider a 7 year project life and an MARR of 12%.
QUESTION 31 Twin Arrows Corp. is considering two mutually exclusive projects. Both require an initial investment of $10,000 at t = 0. Project X has an expected life of 2 years with after-tax cash inflows of $6,000 and $7,800 at the end of Years 1 and 2, respectively. In addition, Project X can be repeated at the end of Year 2 with no changes in its cash flows. Project Y has an expected life of 4 years with after-tax cash inflows of $4,300 at the end of each of the next 4 years. Each project has a WACC of 8%. Using the replacement chain approach, what is the NPV of the most profitable project? O a. $4,242 O b. $4,246 O c. $4,286 O d. $4,325 O e. $4,433
QUESTION 10 Georgia Mills Company (GMC) purchase a milling machine, which it intends to use for the next five years, for $180,000. This machine is expected to save GMC $35,000 during the first operating year. Then, the annual savings are expected to decrease by 3% each subsequent year over the previous year due to increased maintenance costs. Assuming that GMC would operate the machine for an average of 5,000 hours per year and that the machine would have no appreciable salvage value at the end of the five year period, determine the equivalent dollar savings per operating hour at 15% interest compounded annually. OA $3.24 lost per hour OB. $4.09 lost per hour OC $6.74 lost per hour D.$5.92 lost per hour
Module 5 Question 3 (Calculating IRR, payback, and a missing cash flow) The Merriweather Printing Company is trying to decide on the merits of constructing a new publishing facility. The project is expected to provide a series of positive cash flows for each of the next four years. The estimated cash flows associated with this project are as follows: Year Project Cash Flow0 ?1 $800,0002 $400,0003 $300,0004 $500,000 If you know that the project has a regular payback of 2.5 years, what is the project's IRR?
QUESTION 30 Twin Buttes Mine Co. is considering two mutually exclusive projects. Both require an initial investment of $10,000 at t = 0. Project X has an expected life of 2 years with after-tax cash inflows of $6,000 and $8,500 at the end of Years 1 and 2, respectively. In addition, Project X can be repeated at the end of Year 2 with no changes in its cash flows. Project Y has an expected life of 4 years with after-tax cash inflows of $4,600 at the end of each of the next 4 years. Each project has a WACC of 11%. What is the equivalent annual annuity of the most profitable project? a. $1,345.50 O b. $1,346.30 O c. $1,361.52 O d. $1,376.74 O e. $1,411.15
8.2-15 Question Help The Sisyphean Company is planning on investing in a new project. This will involve the purchase of some new machinery costing $440,000. The Sisyphean Company expects cash inflows from this project as detailed below: Year 1 Year 2 Year 3 Year 4 $200,000 $225,000 $275,000 $200,000 The appropriate discount rate for this project is 15%. The net present value (NPV) for this project is closest to: A. $199,213 B. $498,032 C. $209,174 D. $139,449
Brief Exercise 12-9 Swift Oil Company is considering investing in a new oil well. It is expected that the oil well will increase annual revenues by $123,465 and will increase annual expenses by $67,000 including depreciation. The oil well will cost $481,000 and will have a $10,000 salvage value at the end of its 10-year useful life. Calculate the annual rate of return. (Round answer to 0 decimal places, e.g. 13%.) Annual rate of return % Click if you would like to Show Work for this question: Open Show Work
QUESTION 7 Ten years ago, an investor purchased a project for $265,000 .He anticipated a salvage value of $50,000 after 10 years. During this time, his average annual revenue totaled $52,000. (a) Did he recover his investment and a 12% per year return? Assume the annual M&O cost was $10,000 the first year and increased by a constant $1000 per year. The recovery cost is closest to: O A. -44251 O B. -44151 O C.-44351 O D.-44051
Problem 26-02Investment Timing Option: Decision-Tree Analysis The Karns Oil Company is deciding whether to drill for oil on a tract of land that the company owns. The company estimates the project would cost $6 million today. Karns estimates that, once drilled, the oil will generate positive net cash flows of $2.7 million a year at the end of each of the next 4 years. Although the company is fairly confident about its cash flow forecast, in 2 years it will have more information about the local geology and about the price of oil. Karns estimates that if it waits 2 years then the project would cost $7 million. Moreover, if it waits 2 years, then there is a 90% chance that the net cash flows would be $3.3 million a year for 4 years and a 10% chance that they would be $1.8 million a year for 4 years. Assume all cash flows are discounted at 10%. If the company chooses to drill today, what is the project's net present value? A negative value should be entered with a negative sign. Enter…

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