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- 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. Plot the project’s NPV profile. Should the project be accepted if r = 8%? If r = 14%? Explain your reasoning. Can you think of some other capital budgeting situations in which negative cash flows during or at the end of the project’s life might lead to multiple IRRs? What is the project’s MIRR at r = 8%? At r = 14%? Does the MIRR method lead to the same accept-reject decision as the NPV method?The management of Nadia Investors has to make a choice between two projects: Project Intensive andProject Primary. Each project will require an initial investment of R2 500 000.INFORMATION Project Intensive Project Primary Net profits Net profitsYear R R1 80 000 130 0002 180 000 130 0003 120 000 130 0004 220 000 130 0005 50 000 130 000 A scrap value of R100 000 is expected for Project Intensive. Depreciation is calculated on thestraightline basis.The required rate of return is 15%.REQUIRED:Use the information provided above to calculate the following:3.1 Payback Period for Project Intensive (answer in years, months and days). 3.2 Calculate Accounting rate of return for Project Primary (answer in two decimal places). 3.3 Net Present Value for Project Intensive. 3.4 Internal Rate of Return for Project Primary using interpolation (answer in two decimalplaces.Concept of cost of capital Mace Manufacturing is in the process of analyzing its investment decision-making procedures. Two projects evaluated by the firm recently involved building new facilities in different regions, North and South. The basic variables surrounding each project analysis and the resulting decision actions are summarized in the following table: a. An analyst evaluating the North facility expects that the project will be financed by debt that costs the firm 4.2%. What recommendation do you think this analyst will make regarding the investment opportunity? b. Another analyst assigned to study the South facility believes that funding for that project will come from the firm's retained earnings at a cost of 18.3%. What recommendation do you expect this analyst to make regarding the investment? c. Explain why the decisions in parts a and b may not be in the best interest of the firm's investors. d. If the firm maintains a capital structure containing 40% debt and 60%…
- Svalbard Swing Company uses the accounting rate of return to evaluate investment projects. Management accepts projects that earn a return of 14% or more. They are considering two alternative investment proposals with the following data: Initial Investment Useful Life Estimated annual net income Salvage Value Depreciation Method Only Statement #1 is true Only Statement #2 is true Both Statements are true Project #1 $300,000 Evaluate the following statements: 1. The accounting rate of return for Project #1 is 10% 2. Using the accounting rate of return, Svalbard Company will only accept Project #2 O Both Statements are false 5 years $30,000 $100,000 SL Project #2 $400,000 8 years $46,000 $60,000 SLLopez Company is considering three alternative Investment projects below: Project 2 4.8 Years Project 1 4.3 years $ 25,800 13.3% Payback period Net present value. Internal rate of return a. Payback period b. Net present value c. Internal rate of return $ 32,800 Preferred Investment 12.2% Project 3 4.0 Years Which project is preferred if management makes its decision based on (a) payback period, (b) net present value, and (c) Internal rate of return? Reason $ 18,800 11.6%Use the following information provided to answer the question below: INFORMATION Zeda Enterprises has the option to invest in machinery in projects A and B but finance is only available to invest in one of them. You ar given the following projected data: Initial cost Scrap value Depreciation per year Net profit Year 1 Year 2 Year 3 Year 4 Year 5 Net cash flows Year 1 Year 2 Year 3 Year 4 Year 5 Project A R300 000 R40 000 R52 000 R20 000 R30 000 R50 000 R60 000 R10 000 Project B R300 000 0 R60 000 R90 000 R90 000 R90 000 R90 000 R90 000
- National Paints has calculated the Net present Value (NPV) for its new chemical plant project. Net present Value (NPV) = 2500 What decision should National Paint take based only NPV method? Decision cannot be taken Accept the Project Reject the Project Reject or Accept . Amount in NPV is not importantThe below information relates to a prospective project that is under evaluation of Draw plc. Initial investment outlay MVR 1 000 000 Net profit Year 1 MVR 450 000 Year 2 MVR 400 000 Year 3 MVR 350 000 Year 4 MVR 300 000 It was estimated that the project will have a residual value of MVR 200 000 after useful life of 4 years. a) Calculate Accounting Rate of Return (ARR), clearly showing the workings. b) State one main disadvantage of using ARR as an investment appraisal techiiīque.CAPITAL BUDGETING CRITERIA: ETHICAL CONSIDERATIONS A mining company is considering a new project. Because the mine has received a permit, the project would be legal; but it would cause significant harm to a nearby river. The firm could spend an additional $10.66 million at Year 0 to mitigate the environmental Problem, but it would not be required to do so. Developing the mine (without mitigation) would cost $66 million, and the expected cash inflows would be $22 million per year for 5 years. If the firm does invest in mitigation, the annual inflows would be $23 million. The risk-adjusted WACC is 13%. Calculate the NPV and IRR with mitigation. Round your answers to two decimal places. Do not round your intermediate calculations. Enter your answer for NPV in millions. For example, an answer of $10,550,000 should be entered as 10.55.NPV $ millionIRR % Calculate the NPV and IRR without mitigation. Round your answers to two decimal places. Do not round your intermediate calculations.…
- Question(3): A power plant is being considered in the dead sea location. For an initial investment of $170 million, annual net revenues are estimated to be $15 million in years 1–5 and $20 million in years 6–20. Assume no residual market value for the plant. a. What is the simple payback period for the plant? b. What is the discounted payback period when the MARR is 4% c. Using an equivalency technique (FW, PW, or AW), MARR is 4P% per year, would you recommend investing in this project? per year?Which of the following would DECREASE the NPV of a project being considered, other things held constant? Group of answer choices Spreading over the initial investment over the first two years rather than making it in the first year. A decrease in net working capital in year 1. A decrease in the cost of capital for the project. All of the changes would increase the NPV of a project. A shift from straight line to MACRS depreciation method.es Lopez Company is considering three alternative investment projects below: Project 1 5.2 years $ 26,700 Project 2 5.7 Years $ 33,700 14.2% 13.1% Payback period Net present value Internal rate of return a. Payback period b. Net present value c. Internal rate of return. Which project is preferred if management makes its decision based on (a) payback period, (b) net present value, and (c) internal rate of return? Preferred Investment Project 3 4.9 Years Reason $19,700 12.5%
