To construct: NPV profile for the given project. Introduction: Capital Budgeting: It refers to the long-term investment decisions that has been taken by the top management of a company and that are irreversible in nature. These decisions require investment of large amount of cash of the company. Net Present Value (NPV): It is a method under capital budgeting which includes the computation of the net present value of the project in which company is investing. The calculation is done by calculating the difference between the value of cash inflow and value of cash outflow after taking into consideration the discounted rate.

Question

A mining company is deciding whether to open a strip mine with an initial outlay at t = 0 of $1.5 million. Cash inflows of $13.5 million would occur at the end of Year 1. The land must be returned to its natural state so there is a cash outflow of $11.5 million, payable at the end of Year 2. a. Select the project's NPV profile. NPV (Millions of Dollars) (Millions of Dollars (Milions of Dollars) །།། 2.5 1.5 100 WACC (%) 300 400 500 WACC (%) WACC (%) NPV (Millions of Dollars) D 2.5 1.5 0.5 0.5 100 200 300 400 500 WACC (%) The correct sketch is -Select- b. Should the project be accepted if WACC = 10%? -Select- Should the project be accepted if WACC = 20%? -Select- c. What is the project's MIRR at WACC = 10%? Do not round intermediate calculations. Round your answer to two decimal places. % What is the project's MIRR at WACC = 20%? Do not round intermediate calculations. Round your answer to two decimal places. % Does MIRR lead to the same accept/reject decision for this project as the NPV…

Answer 1

Question

Chapter 11, Problem 19P

a.

Summary Introduction

To construct: NPV profile for the given project.

Introduction:

Capital Budgeting:

It refers to the long-term investment decisions that has been taken by the top management of a company and that are irreversible in nature. These decisions require investment of large amount of cash of the company.

Net Present Value (NPV):

It is a method under capital budgeting which includes the computation of the net present value of the project in which company is investing. The calculation is done by calculating the difference between the value of cash inflow and value of cash outflow after taking into consideration the discounted rate.

b.

Summary Introduction

To explain: Whether the project should be accepted or not at 10% WACC and 20% WACC.

c.

Summary Introduction

To identify: A situation where the negative cash flows during or at the last of the project’s life might lead to multiple internal rate of return.

Introduction:

Internal Rate of Return (IRR):

It refers to the rate of return that is computed by the company to make a decision of selection of a project for investment. This rate provides the basis for selection of projects with a lower cost of capital and rejection of project with a higher cost of capital.

d.

Summary Introduction

To calculate: MIRR of the project at 10% and 20% WACC.

Introduction:

Modified Internal Rate of Return (MIRR):

It refers to the rate of return that is computed by the company to make a decision of selection and ranking of a project for investment. This is a modified version of IRR with reinvestment of cash flows at the cost of capital.

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A mining company is deciding whether to open a strip mine with an initial outlay at t = 0 of $1.5 million. Cash inflows of $13.5 million would occur at the end of Year 1. The land must be returned to its natural state so there is a cash outflow of $11.5 million, payable at the end of Year 2. a. Select the project's NPV profile. NPV (Millions of Dollars) (Millions of Dollars (Milions of Dollars) །།། 2.5 1.5 100 WACC (%) 300 400 500 WACC (%) WACC (%) NPV (Millions of Dollars) D 2.5 1.5 0.5 0.5 100 200 300 400 500 WACC (%) The correct sketch is -Select- b. Should the project be accepted if WACC = 10%? -Select- Should the project be accepted if WACC = 20%? -Select- c. What is the project's MIRR at WACC = 10%? Do not round intermediate calculations. Round your answer to two decimal places. % What is the project's MIRR at WACC = 20%? Do not round intermediate calculations. Round your answer to two decimal places. % Does MIRR lead to the same accept/reject decision for this project as the NPV…

The Ulmer Uranium Company is deciding whether or not to open a strip mine whose net cost is $4.4 million. Net cash inflows are expected to be $27.7 million, all coming at the end of Year 1. The land must be returned to its natural state at a cost of $25 million, payable at the end of Year 2. a. Select the correct graph for the project's NPV profile. % NPV(Millions of Dollars) frete % -1 ㅋ A Discount Rate (%) 100 200 300 400 The correct graph is [-Select- V b. Should the project be accepted if r = 6%? Explain your reasoning. The project -Select- ✓ be accepted because NPV is-Select- ✓ Should the project be accepted if r = 11%? Explain your reasoning. The project -Select- be accepted because NPV is -Select- c. What is the project's MIRR at r = 6%? Do not round intermediate calculations. Round your answer to two decimal places. What is the project's MIRR at r = 11%? Do not round intermediate calculations. Round your answer to two decimal places. 100 200 -1 Discount Rate (%) -2 -3 B NPV at…

A mining company is deciding whether to open a strip mine,which costs $2 million. Cash inflows of $13 million would occur at the end of Year 1. Theland must be returned to its natural state at a cost of $12 million, payable at the end ofYear 2.a. Plot the project’s NPV profile.b. Should the project be accepted if WACC = 10%? If WACC = 20%? Explain your reasoning.c. Think of some other capital budgeting situations in which negative cash flows duringor at the end of the project’s life might lead to multiple IRRs.d. What is the project’s MIRR at WACC = 10%? At WACC =20%? Does MIRR lead tothe same accept/reject decision for this project as the NPV method? Does the MIRRmethod always lead to the same accept/reject decision as NPV? (Hint: Considermutually exclusive projects that differ in size.)

Answer 2

Question

Chapter 11, Problem 19P

a.

Summary Introduction

To construct: NPV profile for the given project.

Introduction:

Capital Budgeting:

It refers to the long-term investment decisions that has been taken by the top management of a company and that are irreversible in nature. These decisions require investment of large amount of cash of the company.

Net Present Value (NPV):

It is a method under capital budgeting which includes the computation of the net present value of the project in which company is investing. The calculation is done by calculating the difference between the value of cash inflow and value of cash outflow after taking into consideration the discounted rate.

b.

Summary Introduction

To explain: Whether the project should be accepted or not at 10% WACC and 20% WACC.

c.

Summary Introduction

To identify: A situation where the negative cash flows during or at the last of the project’s life might lead to multiple internal rate of return.

Introduction:

Internal Rate of Return (IRR):

It refers to the rate of return that is computed by the company to make a decision of selection of a project for investment. This rate provides the basis for selection of projects with a lower cost of capital and rejection of project with a higher cost of capital.

d.

Summary Introduction

To calculate: MIRR of the project at 10% and 20% WACC.

Introduction:

Modified Internal Rate of Return (MIRR):

It refers to the rate of return that is computed by the company to make a decision of selection and ranking of a project for investment. This is a modified version of IRR with reinvestment of cash flows at the cost of capital.

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Answer 3

Question

Chapter 11, Problem 19P

a.

Summary Introduction

To construct: NPV profile for the given project.

Introduction:

Capital Budgeting:

It refers to the long-term investment decisions that has been taken by the top management of a company and that are irreversible in nature. These decisions require investment of large amount of cash of the company.

Net Present Value (NPV):

It is a method under capital budgeting which includes the computation of the net present value of the project in which company is investing. The calculation is done by calculating the difference between the value of cash inflow and value of cash outflow after taking into consideration the discounted rate.

b.

Summary Introduction

To explain: Whether the project should be accepted or not at 10% WACC and 20% WACC.

c.

Summary Introduction

To identify: A situation where the negative cash flows during or at the last of the project’s life might lead to multiple internal rate of return.

Introduction:

Internal Rate of Return (IRR):

It refers to the rate of return that is computed by the company to make a decision of selection of a project for investment. This rate provides the basis for selection of projects with a lower cost of capital and rejection of project with a higher cost of capital.

d.

Summary Introduction

To calculate: MIRR of the project at 10% and 20% WACC.

Introduction:

Modified Internal Rate of Return (MIRR):

It refers to the rate of return that is computed by the company to make a decision of selection and ranking of a project for investment. This is a modified version of IRR with reinvestment of cash flows at the cost of capital.

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Answer 4

Question

Chapter 11, Problem 19P

a.

Summary Introduction

To construct: NPV profile for the given project.

Introduction:

Capital Budgeting:

It refers to the long-term investment decisions that has been taken by the top management of a company and that are irreversible in nature. These decisions require investment of large amount of cash of the company.

Net Present Value (NPV):

It is a method under capital budgeting which includes the computation of the net present value of the project in which company is investing. The calculation is done by calculating the difference between the value of cash inflow and value of cash outflow after taking into consideration the discounted rate.

b.

Summary Introduction

To explain: Whether the project should be accepted or not at 10% WACC and 20% WACC.

c.

Summary Introduction

To identify: A situation where the negative cash flows during or at the last of the project’s life might lead to multiple internal rate of return.

Introduction:

Internal Rate of Return (IRR):

It refers to the rate of return that is computed by the company to make a decision of selection of a project for investment. This rate provides the basis for selection of projects with a lower cost of capital and rejection of project with a higher cost of capital.

d.

Summary Introduction

To calculate: MIRR of the project at 10% and 20% WACC.

Introduction:

Modified Internal Rate of Return (MIRR):

It refers to the rate of return that is computed by the company to make a decision of selection and ranking of a project for investment. This is a modified version of IRR with reinvestment of cash flows at the cost of capital.

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Answer 5

Chapter 11, Problem 19P

a.

Summary Introduction

To construct: NPV profile for the given project.

Introduction:

Capital Budgeting:

It refers to the long-term investment decisions that has been taken by the top management of a company and that are irreversible in nature. These decisions require investment of large amount of cash of the company.

Net Present Value (NPV):

It is a method under capital budgeting which includes the computation of the net present value of the project in which company is investing. The calculation is done by calculating the difference between the value of cash inflow and value of cash outflow after taking into consideration the discounted rate.

b.

Summary Introduction

To explain: Whether the project should be accepted or not at 10% WACC and 20% WACC.

c.

Summary Introduction

To identify: A situation where the negative cash flows during or at the last of the project’s life might lead to multiple internal rate of return.

Introduction:

Internal Rate of Return (IRR):

It refers to the rate of return that is computed by the company to make a decision of selection of a project for investment. This rate provides the basis for selection of projects with a lower cost of capital and rejection of project with a higher cost of capital.

d.

Summary Introduction

To calculate: MIRR of the project at 10% and 20% WACC.

Introduction:

Modified Internal Rate of Return (MIRR):

It refers to the rate of return that is computed by the company to make a decision of selection and ranking of a project for investment. This is a modified version of IRR with reinvestment of cash flows at the cost of capital.

Answer 6

Chapter 11, Problem 19P

a.

Summary Introduction

To construct: NPV profile for the given project.

Introduction:

Capital Budgeting:

It refers to the long-term investment decisions that has been taken by the top management of a company and that are irreversible in nature. These decisions require investment of large amount of cash of the company.

Net Present Value (NPV):

It is a method under capital budgeting which includes the computation of the net present value of the project in which company is investing. The calculation is done by calculating the difference between the value of cash inflow and value of cash outflow after taking into consideration the discounted rate.

Answer 7

Chapter 11, Problem 19P

a.

Summary Introduction

To construct: NPV profile for the given project.

Introduction:

Capital Budgeting:

It refers to the long-term investment decisions that has been taken by the top management of a company and that are irreversible in nature. These decisions require investment of large amount of cash of the company.

Net Present Value (NPV):

It is a method under capital budgeting which includes the computation of the net present value of the project in which company is investing. The calculation is done by calculating the difference between the value of cash inflow and value of cash outflow after taking into consideration the discounted rate.

Answer 8

b.

Summary Introduction

To explain: Whether the project should be accepted or not at 10% WACC and 20% WACC.

Answer 9

b.

Summary Introduction

To explain: Whether the project should be accepted or not at 10% WACC and 20% WACC.

Answer 10

c.

Summary Introduction

To identify: A situation where the negative cash flows during or at the last of the project’s life might lead to multiple internal rate of return.

Introduction:

Internal Rate of Return (IRR):

It refers to the rate of return that is computed by the company to make a decision of selection of a project for investment. This rate provides the basis for selection of projects with a lower cost of capital and rejection of project with a higher cost of capital.

Answer 11

c.

Summary Introduction

To identify: A situation where the negative cash flows during or at the last of the project’s life might lead to multiple internal rate of return.

Introduction:

Internal Rate of Return (IRR):

It refers to the rate of return that is computed by the company to make a decision of selection of a project for investment. This rate provides the basis for selection of projects with a lower cost of capital and rejection of project with a higher cost of capital.

Answer 12

d.

Summary Introduction

To calculate: MIRR of the project at 10% and 20% WACC.

Introduction:

Modified Internal Rate of Return (MIRR):

It refers to the rate of return that is computed by the company to make a decision of selection and ranking of a project for investment. This is a modified version of IRR with reinvestment of cash flows at the cost of capital.

Answer 13

d.

Summary Introduction

To calculate: MIRR of the project at 10% and 20% WACC.

Introduction:

Modified Internal Rate of Return (MIRR):

It refers to the rate of return that is computed by the company to make a decision of selection and ranking of a project for investment. This is a modified version of IRR with reinvestment of cash flows at the cost of capital.

Answer 14

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Ch. 11 - How are project classifications used in the...Ch. 11 - Prob. 2Q Ch. 11 - Why is the NFV of a relatively long-term project...Ch. 11 - Prob. 4Q Ch. 11 - If two mutually exclusive projects were being...Ch. 11 - Discuss the following statement: If a firm has...Ch. 11 - Prob. 7Q Ch. 11 - Project X is very risky and has an NPV of 3...Ch. 11 - Prob. 9Q Ch. 11 - A firm has a 100 million capital budget. It is...

Solution Summary: The author explains the NPV profile for the given project. Capital budgeting is the long-term investment decisions that require investment of large amount of cash.

To explain: Whether the project should be accepted or not at 10% WACC and 20% WACC.

Chapter 11 Solutions