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.
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.
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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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.
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