The investment to be made by Highland Mining and Minerals Co. Introduction: Net present value (NPV): It is the difference between the PV (present value) of cash inflows and the PV of cash outflows. It is used in capital budgeting and planning of investment to assess the benefits and losses of any project or investment. Deferred Annuity : A contract that helps an investor to delay his incomes from receiving it until a desirable time for receiving that income, is termed as a deferred annuity. It is divided into two phases. During the saving phase which comes first, an investor only deposits money in the deferred annuity account. During the earning phase which follows the first phase, the investors start receiving payments. The payments can be fixed or variable.

Question

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Answer 1

Question

Chapter 13, Problem 17P

a.

Summary Introduction

To determine : The investment to be made by Highland Mining and Minerals Co.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and the PV of cash outflows. It is used in capital budgeting and planning of investment to assess the benefits and losses of any project or investment.

Deferred Annuity:

A contract that helps an investor to delay his incomes from receiving it until a desirable time for receiving that income, is termed as a deferred annuity. It is divided into two phases. During the saving phase which comes first, an investor only deposits money in the deferred annuity account. During the earning phase which follows the first phase, the investors start receiving payments. The payments can be fixed or variable.

b.

Summary Introduction

To calculate: The investment that should be made by Highland Mining and Minerals Co. if the discount rate is increased by 2% for Australian Gold Mine.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and the PV of cash outflows. It is used in capital budgeting and planning of investment to assess the benefits and losses of any project or investment.

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The Fortune Company is considering a new investment. Financial projections for the investment are tabulated below. The corporate tax rate is 24 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. Year 0 Year 1 Year 2 Year 3 Year 4 Investment $ 28,000 Sales revenue $ 14,500 $ 15,000 $ 15,500 $ 12,500 Operating costs 3,100 3,200 3,300 2,500 Depreciation 7,000 7,000 7,000 7,000 Net working capital spending 340 390 440 340 ?

Answer 2

Question

Chapter 13, Problem 17P

a.

Summary Introduction

To determine : The investment to be made by Highland Mining and Minerals Co.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and the PV of cash outflows. It is used in capital budgeting and planning of investment to assess the benefits and losses of any project or investment.

Deferred Annuity:

A contract that helps an investor to delay his incomes from receiving it until a desirable time for receiving that income, is termed as a deferred annuity. It is divided into two phases. During the saving phase which comes first, an investor only deposits money in the deferred annuity account. During the earning phase which follows the first phase, the investors start receiving payments. The payments can be fixed or variable.

b.

Summary Introduction

To calculate: The investment that should be made by Highland Mining and Minerals Co. if the discount rate is increased by 2% for Australian Gold Mine.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and the PV of cash outflows. It is used in capital budgeting and planning of investment to assess the benefits and losses of any project or investment.

Expert Solution & Answer

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Answer 3

Question

Chapter 13, Problem 17P

a.

Summary Introduction

To determine : The investment to be made by Highland Mining and Minerals Co.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and the PV of cash outflows. It is used in capital budgeting and planning of investment to assess the benefits and losses of any project or investment.

Deferred Annuity:

A contract that helps an investor to delay his incomes from receiving it until a desirable time for receiving that income, is termed as a deferred annuity. It is divided into two phases. During the saving phase which comes first, an investor only deposits money in the deferred annuity account. During the earning phase which follows the first phase, the investors start receiving payments. The payments can be fixed or variable.

b.

Summary Introduction

To calculate: The investment that should be made by Highland Mining and Minerals Co. if the discount rate is increased by 2% for Australian Gold Mine.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and the PV of cash outflows. It is used in capital budgeting and planning of investment to assess the benefits and losses of any project or investment.

Expert Solution & Answer

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Answer 4

Question

Chapter 13, Problem 17P

a.

Summary Introduction

To determine : The investment to be made by Highland Mining and Minerals Co.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and the PV of cash outflows. It is used in capital budgeting and planning of investment to assess the benefits and losses of any project or investment.

Deferred Annuity:

A contract that helps an investor to delay his incomes from receiving it until a desirable time for receiving that income, is termed as a deferred annuity. It is divided into two phases. During the saving phase which comes first, an investor only deposits money in the deferred annuity account. During the earning phase which follows the first phase, the investors start receiving payments. The payments can be fixed or variable.

b.

Summary Introduction

To calculate: The investment that should be made by Highland Mining and Minerals Co. if the discount rate is increased by 2% for Australian Gold Mine.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and the PV of cash outflows. It is used in capital budgeting and planning of investment to assess the benefits and losses of any project or investment.

Expert Solution & Answer

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Answer 5

Chapter 13, Problem 17P

a.

Summary Introduction

To determine : The investment to be made by Highland Mining and Minerals Co.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and the PV of cash outflows. It is used in capital budgeting and planning of investment to assess the benefits and losses of any project or investment.

Deferred Annuity:

A contract that helps an investor to delay his incomes from receiving it until a desirable time for receiving that income, is termed as a deferred annuity. It is divided into two phases. During the saving phase which comes first, an investor only deposits money in the deferred annuity account. During the earning phase which follows the first phase, the investors start receiving payments. The payments can be fixed or variable.

b.

Summary Introduction

To calculate: The investment that should be made by Highland Mining and Minerals Co. if the discount rate is increased by 2% for Australian Gold Mine.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and the PV of cash outflows. It is used in capital budgeting and planning of investment to assess the benefits and losses of any project or investment.

Answer 6

Chapter 13, Problem 17P

a.

Summary Introduction

To determine : The investment to be made by Highland Mining and Minerals Co.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and the PV of cash outflows. It is used in capital budgeting and planning of investment to assess the benefits and losses of any project or investment.

Deferred Annuity:

A contract that helps an investor to delay his incomes from receiving it until a desirable time for receiving that income, is termed as a deferred annuity. It is divided into two phases. During the saving phase which comes first, an investor only deposits money in the deferred annuity account. During the earning phase which follows the first phase, the investors start receiving payments. The payments can be fixed or variable.

Answer 7

Chapter 13, Problem 17P

a.

Summary Introduction

To determine : The investment to be made by Highland Mining and Minerals Co.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and the PV of cash outflows. It is used in capital budgeting and planning of investment to assess the benefits and losses of any project or investment.

Deferred Annuity:

A contract that helps an investor to delay his incomes from receiving it until a desirable time for receiving that income, is termed as a deferred annuity. It is divided into two phases. During the saving phase which comes first, an investor only deposits money in the deferred annuity account. During the earning phase which follows the first phase, the investors start receiving payments. The payments can be fixed or variable.

Answer 8

b.

Summary Introduction

To calculate: The investment that should be made by Highland Mining and Minerals Co. if the discount rate is increased by 2% for Australian Gold Mine.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and the PV of cash outflows. It is used in capital budgeting and planning of investment to assess the benefits and losses of any project or investment.

Answer 9

b.

Summary Introduction

To calculate: The investment that should be made by Highland Mining and Minerals Co. if the discount rate is increased by 2% for Australian Gold Mine.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and the PV of cash outflows. It is used in capital budgeting and planning of investment to assess the benefits and losses of any project or investment.

Answer 10

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Answer 11

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Answer 12

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Answer 13

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Solution Summary: The author explains the calculation of the NPV of each investment by Highland Mining and Minerals Co.

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Chapter 13 Solutions