Viktor Hovland purchases land with natural gas reserves for $500,000. He expects to extract 2,000 units of natural gas from the reserve. In 5 years, when the land is fully depleted, the cost to restore the land to its prior state will be $100,000 and the land has no residual value. In year 1, he extracts 600 units and sells 500 units. It costs 50 dollars per unit to extract the natural gas. What will the book value of the Asset Retirement Obligatio be AFTER 2 YEARS? The effective interest rate is 8 percent. Use a positive number if it is a debit balance and a negative if it is a credit balance.

Your friend Harold is trying to decide whether to buy or lease his next vehicle. He has gathered information about each option but is not sure how to compare the alternatives. Purchasing a new vehicle will cost $26,500, and Harold expects to spend about $500 per year in maintenance costs. He would keep the vehicle for five years and estimates that the salvage value will be $10,500. Alternatively, Harold could lease the same vehicle for five years at a cost of $3,480 per year, including maintenance. Assume a discount rate of 10 percent. Required: Calculate the net present value of Harold’s options. (Future Value of $1,Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) Advise Harold about which option he should choose.

Solar Wind is considering a new project. The project will require $325,000 for new fixed assets and $195,000 for additional inventory. Long-term debt is expected to increase by $300,000. The project has a 5-year life. The fixed assets will be depreciated straight-line to a zero book value over the life of the project. At the end of the project, the fixed assets can be sold for 25% of their original cost. All inventory is expected to be recovered at the end of the project. The project is expected to generate annual sales of $565,000 and costs before depreciation of $302,000. The tax rate is 35%, and the required rate of return is 15%.  The company has other ongoing profitable operations.  In the field specified below, provide your answer to the following question: What is the MIRR of the project? For any credit, show all work in your Excel worksheet. In a new Excel worksheet, a) Answer the questions below and b) Place the company name at the top of the page.   c) Use this information…

Mike Mulligan wants to expand his heavy equipment business into excavation. He plans to buy a used excavator for $300,000. The excavator requires an inventory of spare parts worth $ 10,000. These investments will occur immediately. Mulligan will operate the excavation business for two years and expects EBITDA of $200,000 at the end of each year. He will close his business at the end of the second year, sell the equipment for $100,000 and liquidate the inventory of spare parts. Mulligan pays a tax rate of 25%. Using this information, compute the appropriate values for operating cash flow, investments in net working capital, CAPEX and free cash flow for each year of the project.

You own a coal mining company and are considering opening a new mine. The mine will cost $117.1 million to open. If this money is spent immediately, the mine will generate $21.5 million for the next 10 years. After that, the coal will run out and the site must be cleaned and maintained at environmental standards. The cleaning and maintenance are expected to cost $1.9 million per year in perpetuity. What does the IRR rule say about whether you should accept this opportunity? If the cost of capital is 8.1%, what does the NPV rule say? Use the graph below to determine the IRR(s) in the problem. NPV ($ millions) 31- 21- NPV of the Investment in the Coal Mine 5 10 15 20 Discount Rate (%) What does the IRR rule say about whether you should accept this opportunity? (Select the best choice below.) A. Accept the opportunity because the IRR is greater than the cost of capital. O B. The IRR is r= 11.83%, so accept the opportunity. O C. Reject the opportunity because the IRR is lower than the 8.1%…

Celtic Inc. is considering a 16-year project that will generate before tax cash flow of $18,000 peryear for 16 years. The project requires a machine that costs $96,000. The CCA rate is 20% andthe salvage value is $9,600. Celtic has cash of $66,000 and needs to borrow the balance at 6%interest rate to purchase the machine. Celtic is required to repay $10,000 at year 4 and theremaining balance at year 16. The corporate tax rate is 30%. (a) If the cost of unlevered equity is 12%, the asset class remains open with a positive UCCafter the project ends, and flotation cost is 2% of the amount borrowed, calculate the NPV ofthe project using the APV approach.(b) If the cost of equity is 14% and the asset class remains open with a positive UCC after theproject ends, calculate the NPV of the project using the FTE approach.(c) If the weighted average cost of capital is 11% and the machine is the only asset in the assetclass, calculate the NPV of the project using the WACC approach.

Tom is considering purchasing a $22400 car. After five years, he will be able to sell the vehicle for $8000. Petrol costs will be $2000 per year, insurance $600 per year, and parking $600 per year. Maintenance costs for the first year will be $1000, rising by $400 per year thereafter. The alternative is for Tom to take taxis everywhere. This will cost an estimated $6000 per year. Tom will rent a vehicle each year at a total cost (to year-end) of $600 for the family vacation, if he has no car. If Tom values money at 11 percent annual interest.  What is the annual worth of buying a car?  Should he buy a car? Enter YES or NO in the units box. Note: (Use a negative sign (-) for an overall cost)