Strip Mining Incorporated can develop a new mine at an initial cost of $16 million. The mine will provide a cash flow of $42 million in 1 year. The land then must be reclaimed at a cost of $27 million in the second year. a. What are the IRRS of this project? Note: Enter your answers in ascending order. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. IRR 1 IRR 2 % % b. Should the firm develop the mine if the discount rate is 7%?, or 17%?, or 40%?, or 80%? Note: Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers in millions rounded to 3 decimal places. Discount Rate NPV Develop? 7% million 17% million 40% million 80% million

Strip Mining Incorporated can develop a new mine at an initial cost of $16 million. The mine will provide a cash flow of $42 million in 1 year. The land then must be reclaimed at a cost of $27 million in the second year. a. What are the IRRS of this project? Note: Enter your answers in ascending order. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. IRR 1 IRR 2 % % b. Should the firm develop the mine if the discount rate is 7%?, or 17%?, or 40%?, or 80%? Note: Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers in millions rounded to 3 decimal places. Discount Rate NPV Develop? 7% million 17% million 40% million 80% million

Name: Strip Mining Incorporated can develop a new mine at an initial cost o
Uploaded: 2024-03-20T06:50:59.000Z
Channel: Bartleby
Description: Strip Mining Incorporated can develop a new mine at an initial cost of $16 million. The mine will provide a cash flow of $42 million in 1year. The land then must be reclaimed at a cost of $27 million in the second year.a. What are the IRRS of this p

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 22E

See similar textbooks

Similar questions

Garnette Corp is considering the purchase of a new machine that will cost $342,000 and provide the following cash flows over the next five years: $99,000, $88,000, $92,000. $87,000, and $72,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel. see Appendix C.
Consolidated Aluminum is considering the purchase of a new machine that will cost $308,000 and provide the following cash flows over the next five years: $88,000, 92,000, $91,000, $72,000, and $71,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel, see Appendix C.
Gallant Sports s considering the purchase of a new rock-climbing facility. The company estimates that the construction will require an initial outlay of $350,000. Other cash flows are estimated as follows: Assuming the company limits its analysis to four years due to economic uncertainties, determine the net present value of the rock-climbing facility. Should the company develop the facility if the required rate of return is 6%?
Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $420,000 and will generate $95,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further Instructions on internal rate of return in Excel, see Appendix C.
Manzer Enterprises is considering two independent investments: A new automated materials handling system that costs 900,000 and will produce net cash inflows of 300,000 at the end of each year for the next four years. A computer-aided manufacturing system that costs 775,000 and will produce labor savings of 400,000 and 500,000 at the end of the first year and second year, respectively. Manzer has a cost of capital of 8 percent. Required: 1. Calculate the IRR for the first investment and determine if it is acceptable or not. 2. Calculate the IRR of the second investment and comment on its acceptability. Use 12 percent as the first guess. 3. What if the cash flows for the first investment are 250,000 instead of 300,000?
The Pinkerton Publishing Company is considering two mutually exclusive expansion plans. Plan A calls for the expenditure of 50 million on a large-scale, integrated plant that will provide an expected cash flow stream of 8 million per year for 20 years. Plan B calls for the expenditure of 15 million to build a somewhat less efficient, more labor-intensive plant that has an expected cash flow stream of 3.4 million per year for 20 years. The firms cost of capital is 10%. a. Calculate each projects NPV and IRR. b. Set up a Project by showing the cash flows that will exist if the firm goes with the large plant rather than the smaller plant. What are the NPV and the IRR for this Project ? c. Graph the NPV profiles for Plan A, Plan B, and Project .
Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated revenue producing lite of 4 years. Mason has a required rate of return that is 12% and a cost of capital of 11%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
Washington-Pacific (W-P) invested $4 million to buy a tract of land and plant some young pine trees. The trees can be harvested in 10 years, at which time W-P plans to sell the forest at an expected price of $8 million. What is W-P’s expected rate of return?
Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?