Concept explainers
An electric utility is considering a new power plant in northern Arizona. Power from the plant would be sold in the Phoenix area, where it is badly needed. Because the firm has received a permit, the plant would be legal; but it would cause some air pollution. The company could spend an additional $40 million at Year 0 to mitigate the environmental problem, but it would not be required to do so. The plant without mitigation would require an initial outlay of $269.87 million, and the expected
|
- Check My Work (1 remaining)
Step by stepSolved in 2 steps with 2 images
- Assume that Rolando Corporation is considering the renovation and/or replacement of some of its older and outdated carpet-manufacturing equipment. Its objective is to improve the efficiency of operations in terms of both speed and reduction in the number of defects. The company’s finance department has compiled pertinent data that will allow it to conduct a marginal cost–benefit analysis for the proposed equipment replacement. The cash outlay for new equipment would be approximately $600,000. The net book value of the old equipment and its potential net selling price add up to $250,000. The total benefits from the new equipment (measured in today’s dollars) would be $900,000. The benefits of the old equipment over a similar period of time (measured in today’s dollars) would be $300,000. TO DO Create a spreadsheet to conduct a marginal cost–benefit analysis for Rolando Corporation, and determine the: 2. The marginal (added) cost of the proposed new equipment. *arrow_forward8. A nuclear power company is deciding whether tobuild a nuclear power plant at Diablo Canyon or atRoy Rogers City. The cost of building the powerplant is $70 million at Diablo and $95 million atRoy Rogers City. If the company builds at Diablo,however, and an earthquake occurs at Diablo duringthe next five years, construction will be terminatedand the company will lose $40 million (and will stillhave to build a power plant at Roy Rogers City).Without further expert information the companybelieves there is a 10% chance that an earthquakewill occur, at Diablo during the next five years. For$1.5 million, a geologist can be hired to analyze thefault structure at Diablo Canyon. She will predicteither that an earthquake will occur or that an earthquake will not occur. The geologist’s past recordindicates that she will predict an earthquake withprobability 0.90 if an earthquake will occur, andshe will predict no earthquake with probability 0.80if an earthquake will not occur. Should the…arrow_forwardAssume that Monsanto Corporation is considering the replacement of some ofits older and outdated carpet-manu facturing equipment. Its objective is to improve the efficiency of operations in terms of both speed and reduction in the number of defects. The company's finance department has compiled pertinent data to conduct a marginal cost-benefit analysis for the proposed equipment replacement. The cash outlay for new equipment would be approximately $600,000. The net book value of the old equipment and its potential net selling price add up to $250,000. The total benefits over the life of the new equipment (measured in today's dollars) would be $900,000. The sum of benefits from the remaining life of the old equipment (measured in today's dollars) would be $300,000. To Do Create a spreadsheet to conduct a marginal cost-benefit analysis for Monsanto Corporation, and determine the following: a. The marginal benefits of the proposed new equipment. b. The marg inal costs of the proposed new…arrow_forward
- Century Roofing is thinking of opening a new warehouse, and the key data are shown below. The company owns the building that would be used, and it could sell it for $100,000 after taxes if it decides not to open the new warehouse. The equipment for the project would be depreciated by the straight-line method over the project's 3-year life, after which it would be worth nothing and thus it would have a zero salvage value. No new working capital would be required, and revenues and other operating costs would be constant over the project's 3-year life. What is the project's NPV? (Hint: Cash flows are constant in Years 1-3.) Project cost of capital (r) 10.0% Opportunity cost S100,000 Net equipment cost (depreciable basis) $65,000 Straight-line deprec. rate for equipment 33.333% Sales revenues, each year Operating costs (excl. deprec.), each year $25,000 $123,000 Tax rate 25% a. $29,691 b. S31,254 c. $28,207 d. $32,817 e. $26,796arrow_forwardDwight Donovan, the president of Stuart Enterprises, is considering two investment opportunities. Because of limited resources, he will be able to invest in only one of them. Project A is to purchase a machine that will enable factory automation; the machine is expected to have a useful life of five years and no salvage value. Project B supports a training program that will improve the skills of employees operating the current equipment. Initial cash expenditures for Project A are $104,000 and for Project B are $44,000. The annual expected cash inflows are $28,139 for Project A and $12,816 for Project B. Both investments are expected to provide cash flow benefits for the next five years. Stuart Enterprises’ desired rate of return is 6 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)Required Compute the net present value of each project. Which project should be adopted based on the net present value approach? Compute the approximate internal…arrow_forwardAn electric utility is considering a new power plant in northern Arizona. Power from the plant would be sold in the Phoenix area, where it is badly needed. Because the firm has received a permit, the plant would be legal; but it would cause some alr pollution. The company could spend an additional $40 million at Year 0 to mitigate the environmental problem, but it would not be required to do so. The plant without mitigation would require an initial outlay of $210.55 million, and the expected cash Inflows would be $70 million per year for 5 years. If the firm does Invest in mitigation, the annual inflows would be $75.20 million. Unemployment in the area where the plant would be built is high, and the plant would provide about 350 good jobs. The risk adjusted WACC is 19%. 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. Negative values, if any, should be indicated by a minus sign. Do not…arrow_forward
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
- Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningCorporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education