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.)IRRCb. The Utah Mining Corporation requires a return of 8 percent on such projects. Shouldthe mine be opened?O YesO No

The IRR of a project refers to the measure of the project's profitability calculated by finding the…

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

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Problem 6-4 Calculating Project Cash Flow from Assets Esfandairi Enterprises is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.29 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life. The project is estimated to generate $1,790,000 in annual sales, with costs of $700,000. The project requires an initial investment in net working capital of $410,000, and the fixed asset will have a market value of $420,000 at the end of the project. a. If the tax rate is 21 percent, what is the project's Year O net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, e.g., 1,234,567. A negative answer should be indicated by a minus sign.) b. If the required return is 12 percent, what is the project's NPV? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places,…
Question 23 Charles Henri is considering investing $60,000 in a project this is expected to provide him with cash inflows of $15,000 in each of the first three years and $20,000 for the following year. At a discount rate of 7 percent this investment has a net present value of ____, but at the relevant discount rate of 3 percent the project’s net present value is ____. Group of answer choices $5,000; $198.91 $5,000; $289.19 $5,000; $378.27 $10,000; $289.19 $10,000; $423.15
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
ed Problem 6-18 Project NPV Imperial Motors is considering producing its popular Rooster model in China. This will involve an initial investment of CNY 4.8 billion. The plant will start production after one year. It is expected to last for five years and have a salvage value at the end of this period of CNY 508 million in real terms. The plant will produce 200,000 cars a year. The firm anticipates that in the first year, it will be able to sell each car for CNY 73,000, and thereafter the price is expected to increase by 4% a year. Raw materials for each car are forecasted to cost CNY 26,000 in the first year, and these costs are predicted to increase by 3% annually. Total labor costs for the plant are expected to be CNY 1.9 billion in the first year and thereafter will increase by 7% a year. The land on which the plant is built can be rented for five years at a fixed cost of CNY 308 million a year payable at the beginning of each year. Imperial's discount rate for this type of project…
Problem 7-18 Abandonment We are examining a new project. We expect to sell 6,100 units per year at $75 net cash flow apiece for the next 10 years. In other words, the annual operating cash flow is projected to be $75 x 6,100 $457,500. The relevant discount rate is 18 percent, and the initial investment required is $1,720,000. After the first year, the project can be dismantled and sold for $1,550,000. Suppose you think it is likely that expected sales will be revised upward to 9,100 units if the first year is a success and revised downward to 4,700 units if the first year is not a success. a. If success and failure are equally likely, what is the NPV of the project? Consider the possibility of abandonment in answering. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the value of the option to abandon? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. NPV b. Option value S $…
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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