Financial Management: Theory & Practice (MindTap Course List)
15th Edition
ISBN: 9781305632295
Author: Eugene F. Brigham, Michael C. Ehrhardt
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 10, Problem 12P
a)
Summary Introduction
To determine: The project’s
b)
Summary Introduction
To determine: Whether then project be undertaken if environmental impacts were not a consideration.
c)
Summary Introduction
To determine: The manner in which environmental effects be considered when evaluating this or any other project and these concepts affect the decision in part b.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Rearden Metals is considering opening a strip mining operation to provide some of the raw materials needed in producing Rearden metal. The initial purchase of the land and the associated costs of opening up mining operations will cost $100 million today. The mine is expected to generate $16 million worth of ore per year for the next 12 years. At
the end of the 12th year Rearden will need to spend $20 million to restore the land to its original pristine nature appearance.
The number of potential IRRs that exist for Rearden's mining operation is equal to:
O A. 2
OB. 1
O C. 12
O D. 0
C
Rearden Metals is considering opening a strip mining operation to provide some of the raw materials needed in producing Rearden metal. The initial purchase of the land and the associated costs of opening up mining operations will cost $100 million today. The mine is expected to generate $16 million worth of ore per year for the next 12 years. At the end of the 12th year Rearden will need to spend $20 million to restore the land to its original pristine nature appearance.The payback period for Rearden's mining operation is closest to:
A mining company in South Africa has discovered a new gold vein in a mountain 150 kilometers north of Johannesburg. SA Mining Corporation will have to decide if they should set up a mine in the newly discovered location. They will be using the most cost-effective, but environmentally damaging method of gold mining sulfuric acid extraction. To go ahead SA Mining Corporation must spend $900,000 on new mining equipment and pay $165,000 for its installation. The goldmine will make an annual profit contribution of $350,000 each year for the next five years of the extraction. SA’s cost of capital is 14% and assumes that cash flows occur at the end of each year.
What is the NPV, and IRR of the project? [Note: you are supposed to show every step of your calculation and interpret the result.]
Critically discuss how environmental effects should be considered when evaluating these types of projects (impact investing), include in your discussion the challenges in quantifying these issues in…
Chapter 10 Solutions
Financial Management: Theory & Practice (MindTap Course List)
Ch. 10 - Define each of the following terms:
Capital...Ch. 10 - What types of projects require the least detailed...Ch. 10 - Explain why the NPV of a relatively long-term...Ch. 10 - When two mutually exclusive projects are being...Ch. 10 - Suppose a firm is considering two mutually...Ch. 10 - A project has an initial cost of 40,000, expected...Ch. 10 - Refer to Problem 10-1. What is the project’s IRR?
Ch. 10 - Refer to Problem 10-1. What is the projects MIRR?Ch. 10 - Prob. 4PCh. 10 - Prob. 5P
Ch. 10 - Prob. 6PCh. 10 - Your division is considering two investment...Ch. 10 - Edelman Engineering is considering including two...Ch. 10 - Davis Industries must choose between a gas-powered...Ch. 10 - Project S has a cost of 10,000 and is expected to...Ch. 10 - Your company is considering two mutually exclusive...Ch. 10 - Prob. 12PCh. 10 - Cummings Products is considering two mutually...Ch. 10 - Prob. 14PCh. 10 - Shao Airlines is considering the purchase of two...Ch. 10 - The Perez Company has the opportunity to invest in...Ch. 10 - Filkins Fabric Company is considering the...Ch. 10 - Prob. 19PCh. 10 - The Aubey Coffee Company is evaluating the...Ch. 10 - Your division is considering two investment...Ch. 10 - Prob. 22PCh. 10 - Start with the partial model in the file Ch10 P23...Ch. 10 - What is capital budgeting?Ch. 10 - Prob. 2MCCh. 10 - c. (1) Define the term net present value (NPV)....Ch. 10 - Prob. 4MCCh. 10 - Draw NPV profiles for Franchises L and S. At what...Ch. 10 - What is the underlying cause of ranking conflicts...Ch. 10 - Define the term modified IRR (MIRR). Find the...Ch. 10 - What does the profitability index (PI) measure?...Ch. 10 - (1) What is the payback period? Find the paybacks...Ch. 10 - Prob. 10MCCh. 10 - In an unrelated analysis, you have the opportunity...Ch. 10 - You are also considering another project that has...
Knowledge Booster
Similar questions
- Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.arrow_forwardAfter discovering a new gold vein in the balochistan mountains, ZSZ mining corporation must decide whether to go ajead and develop the deposit. The most cost effective method of mining gold is sulphuric acid extraction, a process that could result in environmental damage. Before proceeding with the extraction, ZSZ must spend Rs. 12000000 for new mining equipment and pay Rs. 1650000 for its installation. The gold mined will net the firm an estimated Rs 4350000 each year for the 5 year life of the vein. ZSZs cost of capital is 14%. For the purposes of this problem, assume that the cash inflows occur at the end of the year. What are the project's NPV and IRR? Should this project be undertaken if environmental impacts were not a consideration? How should environmental effects be considered when evaluating this, or any other project? How might these concepts affect the decision in part B?arrow_forwardA mining company in South Africa has discovered a new gold vein in a mountain 150 kilometers north of Johannesburg. SA mining corporation will have to decide if they should set up a mine in the newly discovered location. They will be using the most cost effective, but environmentally damaging method of gold mining sulfuric acid extraction. To go ahead SA mining corporation must spend $900,000 on new mining equipment and pay $165,000 for its installation. The goldmine will make an annual profit contribution of $350,000 each year of the next five years of the extraction. SA’s cost of capital is 14% and assume that cash flows occur at the end of each year. a)Calculate the NPV,and the IRR of the project. b)Critically discuss how environmental effects should be considered when evaluating these types of projects (impact investing),include in your discussion the challenges in quantifying these issues in finance decisions of business organizations?arrow_forward
- A mining company in South Africa has discovered a new gold vein in a mountain 150 kilometers north of Johannesburg. SA mining corporation will have to decide if they should set up a mine in the newly discovered location. They will be using the most cost effective, but environmentally damaging method of gold mining sulfuric acid extraction. To go ahead SA mining corporation must spend $900,000 on new mining equipment and pay $165,000 for its installation. The goldmine will make an annual profit contribution of $350,000 each year over the next five years of the extraction. SA’s cost of capital is 14% and assume that cash flows occur at the end of each year. a.What is the NPV, and IRR of the project? b.Critically discuss how environmental effects should be considered when evaluating these types of projects (impact investing), include in your discussion the challenges in quantifying these issues in finance decisions of business organizations?arrow_forwardA mining company is considering a new project. Because the mine has received a permit, the project would be legal; but it would cause significant harm to a nearby river. The firm could spend an additional $9 million at Year 0 to mitigate the environmental problem, but it would not be required to do so. Developing the mine (without mitigation) would require an initial outlay of $51 million, and the expected cash inflows would be $17 million per year for 5 years. If the firm does invest in mitigation, the annual inflows would be $18 million. The risk-adjusted WACC is 10%. a. Calculate the NPV and IRR with mitigation. Enter your answer for NPV in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your answers to two decimal places. NPV: $ IRR: % million Calculate the NPV and IRR without mitigation. Enter your answer for NPV in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round…arrow_forwardA mining company is considering a new project. Because the mine has received a permit, the project would be legal; but it would cause significant harm to a nearby river. The firm could spend an additional $11 million at Year 0 to mitigate the environmental problem, but it would not be required to do so. Developing the mine (without mitigation) would require an initial outlay of $69 million, and the expected cash inflows would be $23 million per year for 5 years. If the firm does invest in mitigation, the annual inflows would be $24 million. The risk-adjusted WACC is 12%. a. Calculate the NPV and IRR with mitigation. Enter your answer for NPV in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your answers to two decimal places. NPV: $ million IRR: % Calculate the NPV and IRR without mitigation. Enter your answer for NPV in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round…arrow_forward
- A mining company is considering a new project. Because the mine has received a permit, the project would be legal; but it would cause significant harm to a nearby river. The firm could spend an additional $9 million at Year 0 to mitigate the environmental Problem, but it would not be required to do so. Developing the mine (without mitigation) would cost $51 million, and the expected cash inflows would be $17 million per year for 5 years. If the firm does invest in mitigation, the annual inflows would be $18 million. The risk-adjusted WACC is 11% a. Calculate the NPV and IRR with mitigation. Enter your answer for NPV in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your answers to two decimal places.NPV: $ millionIRR: % Calculate the NPV and IRR without mitigation. Enter your answer for NPV in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations.…arrow_forwardA mining company is considering a new project. Because the mine has received a permit, the project would be legal; but it would cause significant harm to a nearby river. The firm could spend an additional $10 million at Year 0 to mitigate the environmental problem, but it would not be required to do so. Developing the mine (without mitigation) would require an initial outlay of $60 million, and the expected cash inflows would be $20 million per year for 5 years. If the firm does invest in mitigation, the annual inflows would be $21 million. The risk-adjusted WACC is 15%. How should the environmental effects be dealt with when this project is evaluated? The environmental effects if not mitigated could result in additional loss of cash flows and/or fines and penalties due to ill will among customers, community, etc. Therefore, even though the mine is legal without mitigation, the company needs to make sure that they have anticipated all costs in the "no mitigation" analysis from not…arrow_forwardA mining company is considering a new project. Because the mine has received a permit, the project would be legal; but it would cause significant harm to a nearby river. The firm could spend an additional $10 million at Year 0 to mitigate the environmental problem, but it would not be required to do so. Developing the mine (without mitigation) would require an initial outlay of $60 million, and the expected cash inflows would be $20 million per year for 5 years. If the firm does invest in mitigation, the annual inflows would be $21 million. The risk-adjusted WACC is 15%. Should this project be undertaken? 1. The project should not be undertaken under the "no mitigation" assumption. 2. The project should be undertaken only under the " no mitigation" assumption. 3. The project should not be undertaken under the "mitigation" assumption. 4. Even when mitigation is considered the project has a positive NPV, so it should be undertaken. 5. Even when mitigation is considered the project has a…arrow_forward
- A mining company is considering a new project. Because the mine has received a permit, the project would be legal; but it would cause significant harm to a nearby river. The firm could spend an additional $10 million at Year 0 to mitigate the environmental problem, but it would not be required to do so. Developing the mine (without mitigation) would require an initial outlay of $60 million, and the expected cash inflows would be $20 million per year for 5 years. If the firm does invest in mitigation, the annual inflows would be $21 million. The risk-adjusted WACC is 15%. Calculate the NPV and IRR with mitigation. Enter your answer for NPV in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your answers to two decimal places. NPV: $ ____ million IRR: ___________ % Calculate the NPV and IRR without mitigation. Enter your answer for NPV in millions. For example, an answer of $10,550,000 should be entered as…arrow_forwardA mining company is considering a new project. Because the mine has received a permit, the project would be legal; but it would cause significant harm to a nearby river. The firm could spend an additional $10 million at Year 0 to mitigate the environmental Problem, but it would not be required to do so. Developing the mine (without mitigation) would cost $60 million, and the expected cash inflows would be $20 million per year for 5 years. If the firm does invest in mitigation, the annual inflows would be $21 million. The risk-adjusted WACC is 10%. Calculate the NPV and IRR with mitigation. Round your answers to two decimal places. Do not round your intermediate calculations. Enter your answer for NPV in millions. For example, an answer of $10,550,000 should be entered as 10.55.NPV $ millionIRR % Calculate the NPV and IRR without mitigation. Round your answers to two decimal places. Do not round your intermediate calculations. Enter your answer for NPV in millions. For example, an…arrow_forwardA mining company is considering a new project. Because the mine has received a permit, the project would be legal; but it would cause significant harm to a nearby river. The firm could spend an additional $9.66 million at Year 0 to mitigate the environmental problem, but it would not be required to do so. Developing the mine (without mitigation) would require an initial outlay of $57 million, and the expected cash inflows would be $19 million per year for 5 years. If the firm does invest in mitigation, the annual inflows would be $20 million. The risk-adjusted WACC is 11%. a. Calculate the NPV and IRR with mitigation. Enter your answer for NPV in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your answers to two decimal places. NPV: $ million IRR: % Calculate the NPV and IRR without mitigation. Enter your answer for NPV in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning