Net present value . Introduction: The difference between the present value of cash inflows and cash outflows is termed as NPV (Net present value) .

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Answer 1

Question

Chapter 7, Problem 20P

a)

Summary Introduction

To determine: Net present value.

Introduction:

The difference between the present value of cash inflows and cash outflows is termed as NPV (Net present value).

b)

Summary Introduction

To determine: Whether the usage of IRR (Internal rate of return) is reliable for the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation.

c)

Summary Introduction

To determine: The internal rate of return of the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation. IRR is the rate at which the cash flows from the project will be equal to zero.

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You are considering constructing a new plant in a remote wilderness area to process the ore from aplanned mining operation. You anticipate that the plant will take a year to build and cost $99 millionupfront. Once built, it will generate cash flows of $12 million at the end of every year over the life of theplant. The plant will be useless 20 years after its completion once the mine runs out of ore. At that pointyou expect to pay $141 million to shut the plant down and restore the area to its pristine state. Using acost of capital of 12%,a. What is the NPV of the project?b. Is using the IRR rule reliable for this project? Explain.c. What are the IRR’s of this project?

You are considering constructing a new plant in a remote wilderness area to process the ore from a planned mining operation. You anticipate that the plant will take a year to build and cost $95 million upfront. Once built, it will generate cash flows of $12 million per year starting two years from today. In 21 years, after its 20th year of operation, the mine will run out of ore and you expect to pay $145 million to shut the plant down and restore the area to its pristine state. Using a cost of capital of 12%: a. What is the NPV of the project? b. Is using the IRR rule reliable for this project? Explain. c. What are the IRRS of this project?

You are considering constructing a new plant in a remote wilderness area to process the ore from a planned mining operation. You anticipate that the plant will take a year to build and cost $99 million upfront. Once built, it will generate cash flows of $14 million per year starting two years from today. In 21 years, after its 20th year of operation, the mine will run out of ore and you expect to pay $181 million to shut the plant down and restore the area to its pristine state. Using a cost of capital of 13%: a. What is the NPV of the project? b. Is using the IRR rule reliable for this project? Explain. c. What are the IRRS of this project? ... a. What is the NPV of the project? The NPV of the project is $ million. (Round to one decimal place.)

Answer 2

Question

Chapter 7, Problem 20P

a)

Summary Introduction

To determine: Net present value.

Introduction:

The difference between the present value of cash inflows and cash outflows is termed as NPV (Net present value).

b)

Summary Introduction

To determine: Whether the usage of IRR (Internal rate of return) is reliable for the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation.

c)

Summary Introduction

To determine: The internal rate of return of the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation. IRR is the rate at which the cash flows from the project will be equal to zero.

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Answer 3

Question

Chapter 7, Problem 20P

a)

Summary Introduction

To determine: Net present value.

Introduction:

The difference between the present value of cash inflows and cash outflows is termed as NPV (Net present value).

b)

Summary Introduction

To determine: Whether the usage of IRR (Internal rate of return) is reliable for the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation.

c)

Summary Introduction

To determine: The internal rate of return of the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation. IRR is the rate at which the cash flows from the project will be equal to zero.

Expert Solution & Answer

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Answer 4

Question

Chapter 7, Problem 20P

a)

Summary Introduction

To determine: Net present value.

Introduction:

The difference between the present value of cash inflows and cash outflows is termed as NPV (Net present value).

b)

Summary Introduction

To determine: Whether the usage of IRR (Internal rate of return) is reliable for the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation.

c)

Summary Introduction

To determine: The internal rate of return of the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation. IRR is the rate at which the cash flows from the project will be equal to zero.

Expert Solution & Answer

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Answer 5

Chapter 7, Problem 20P

a)

Summary Introduction

To determine: Net present value.

Introduction:

The difference between the present value of cash inflows and cash outflows is termed as NPV (Net present value).

b)

Summary Introduction

To determine: Whether the usage of IRR (Internal rate of return) is reliable for the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation.

c)

Summary Introduction

To determine: The internal rate of return of the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation. IRR is the rate at which the cash flows from the project will be equal to zero.

Answer 6

Chapter 7, Problem 20P

a)

Summary Introduction

To determine: Net present value.

Introduction:

The difference between the present value of cash inflows and cash outflows is termed as NPV (Net present value).

Answer 7

Chapter 7, Problem 20P

a)

Summary Introduction

To determine: Net present value.

Introduction:

The difference between the present value of cash inflows and cash outflows is termed as NPV (Net present value).

Answer 8

b)

Summary Introduction

To determine: Whether the usage of IRR (Internal rate of return) is reliable for the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation.

Answer 9

b)

Summary Introduction

To determine: Whether the usage of IRR (Internal rate of return) is reliable for the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation.

Answer 10

c)

Summary Introduction

To determine: The internal rate of return of the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation. IRR is the rate at which the cash flows from the project will be equal to zero.

Answer 11

c)

Summary Introduction

To determine: The internal rate of return of the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation. IRR is the rate at which the cash flows from the project will be equal to zero.

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. 7.1 - Explain the NPV rule for stand-alone projects.Ch. 7.1 - What does the difference between the cost of...Ch. 7.2 - Prob. 1CC Ch. 7.2 - If the IRR rule and the NPV rule lead to different...Ch. 7.3 - Can the payback rule reject projects that have...Ch. 7.3 - Prob. 2CC Ch. 7.4 - For mutually exclusive projects, explain why...Ch. 7.4 - What is the incremental RR and what are its...Ch. 7.5 - Prob. 1CC Ch. 7.5 - Prob. 2CC

Net present value . Introduction: The difference between the present value of cash inflows and cash outflows is termed as NPV (Net present value) .

Solution Summary: The author explains that the difference between the present value of cash inflows and cash out flows is termed as NPV.

Concept explainers

Videos

To determine: Net present value.

Introduction:

The difference between the present value of cash inflows and cash outflows is termed as NPV (Net present value).

To determine: Whether the usage of IRR (Internal rate of return) is reliable for the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation.

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Chapter 7 Solutions

Net present value . Introduction: The difference between the present value of cash inflows and cash outflows is termed as NPV (Net present value) .

Solution Summary: The author explains that the difference between the present value of cash inflows and cash out flows is termed as NPV.

Concept explainers

Videos

To determine: Net present value. Introduction: The difference between the present value of cash inflows and cash outflows is termed as NPV (Net present value).

To determine: Whether the usage of IRR (Internal rate of return) is reliable for the project. Introduction: Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation.

Want to see the full answer?

Chapter 7 Solutions

To determine: Net present value.

Introduction:

The difference between the present value of cash inflows and cash outflows is termed as NPV (Net present value).

To determine: Whether the usage of IRR (Internal rate of return) is reliable for the project.

Introduction:

Internal rate of return is a method of calculating the rate of return. This calculation does not include the external factors like cost of capital and inflation.