Strip Mining Inc. can develop a new mine at an initial cost of $5 million. The mine will provide a cash flow of $30 million in year 1. The land then must be reclaimed at a cost of $28 million in the second year. At which of the following cost of capital's should the company develop the mine? 10% 20% 350% 400%

Strip Mining Inc. can develop a new mine at an initial cost of $5 million. The mine will provide a cash flow of $30 million in year 1. The land then must be reclaimed at a cost of $28 million in the second year. At which of the following cost of capital's should the company develop the mine? 10% 20% 350% 400%

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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Which is the correct option? San Diego Enterprises is planning to invest in a five-year project costing $270,000. The project is expected to generate annual cash revenues of $90,000 and annual cash expenses (including depreciation) of $30,000. The estimated residual value is $20,000. The project’s payback period is: a. 3.25 years b. 5 years c. 3 years d. 4.5 years
Given the following, calculate the project's cash flows, NPV, and IRR. Initial investment $325,000 Expected life is 5 years First Year Revenues: 145,000 First-Year Expenses: $65,000 • Growth for revenue and expenses: 4.5 percent per year Straight Line Depreciation over 5 years Salvage Value: $50,000 One-time net working capital investment of $10,000 is required at the start of the project and will be recovered at project end The tax rate is 34 percent The risk-free rate is 4 percent Beta is 1.1 • The expected market return is 8 percent Answer the following: ● ● ● ● ● ● ● ● ● What are the cash flows for each year? What is the NPV? What is the IRR?
A project will produce an operating cash flow of $18,000 a year for 8 years. The initial fixed asset investment in the project will be $75,000. The net aftertax salvage value is estimated at $11,250 and will be received during the last year of the project's life. What is the IRR? A. 18.57% B. 16.71% C. 17.08% D. 18.94% E. 17.83%
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a project estimated initial cost is $170,000. The project is expected to generate the following cashflows for the first 7 years. Years Net cashflows $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 If the company is MARR is 12%, using NPW/NFW analysis is the project profitable?
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Strange Manufacturing Co. is purchasing a production facility at a cost of $21 million. The firm expects the project to generate annual cash flows of $7 million annually over the next five years. Its cost of capital is 10%. What is the net present value of this project? O $5,535,507 O $6,535,507 O $6,213,909 O $890,197
A capital project requires a $50,000 increase in working capital. It also requires equipment at a price of $200,000. It takes $20,000 to install the equipment and $15,000 to ship the equipment to the desired location. The income tax rate is 35% and equipment is depreciated for income tax purposes on a straight line basis.What is the project's initial cash flow?Group of answer choices A.200,000 B.120,000 C.285,000 D.235,000 E. 250,000
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manufacture a proposed new product. The land `costs P15,000,000, the building costs P30,000,000, the equipment costs P12,500,000, and P5,000,000 working capital is required. At the end of 12 years, the land can be sold for P25,000,000, the building for P12,000,000, the equipment for P250,000 and all of the working capital recovered. The annual disbursements for labor, materials, and all other expenses are estimated to cost P23,750,000. If the company requires a minimum return of 25%, what should be the minimum annual sales for 12 years to justify the investment? Ans. P39,748,560

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