The cash flows of two projects have been presented to Copper Limited ("Copper"), which have the different risk profiles compared to Copper existing operations: Year 0 1 Project Black Project White (500,000) (220,000) 1,360,000 70,000 (900,000) 140,000 0 80,000 2 3 During a recent Board meeting, the following statements were presented: 'Since depreciation is a non-cash item, the useful life chosen will not have an impact on the cash flows of a project. Instead, interest cost is a cash out flow and should be included when computing a project's cash flows. And if the tax rate increases, NPV of a project will definitely decline. if you are the finance manager of Copper, how would you assess these two projects, given the knowledge learned from Essentials of Financial Management? Critique the above statement presented during the Board meeting. Where appropriate, state your assumptions.

Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter12: Capital Investment Analysis
Section: Chapter Questions
Problem 3MAD
icon
Related questions
Question
The cash flows of two projects have been presented to Copper Limited ("Copper"), which have
the different risk profiles compared to Copper existing operations:
Year
0
1
Project Black Project White
(500,000)
(220,000)
1,360,000
70,000
(900,000)
140,000
0
80,000
2
3
During a recent Board meeting, the following statements were presented:
'Since depreciation is a non-cash item, the useful life chosen will not have an impact on the
cash flows of a project. Instead, interest cost is a cash out flow and should be included when
computing a project's cash flows. And if the tax rate increases, NPV of a project will definitely
decline.
if you are the finance manager of Copper, how would you assess these two projects,
given the knowledge learned from
Essentials of Financial Management?
Critique the above statement presented during the Board meeting. Where appropriate,
state your assumptions.
Transcribed Image Text:The cash flows of two projects have been presented to Copper Limited ("Copper"), which have the different risk profiles compared to Copper existing operations: Year 0 1 Project Black Project White (500,000) (220,000) 1,360,000 70,000 (900,000) 140,000 0 80,000 2 3 During a recent Board meeting, the following statements were presented: 'Since depreciation is a non-cash item, the useful life chosen will not have an impact on the cash flows of a project. Instead, interest cost is a cash out flow and should be included when computing a project's cash flows. And if the tax rate increases, NPV of a project will definitely decline. if you are the finance manager of Copper, how would you assess these two projects, given the knowledge learned from Essentials of Financial Management? Critique the above statement presented during the Board meeting. Where appropriate, state your assumptions.
Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Managerial Accounting
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Financial And Managerial Accounting
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,