Question

A mining company is deciding whether to open a strip mine, which costs $1.5 million. Cash inflows of $14 million would occur at the end of Year 1. The land must be returned to its natural state at a cost of $12.5 million, payable at the end of Year 2.

1. Plot the project's NPV profile.
   
      
   
   The correct sketch is -Select-ABCDItem 1 .
2. 
   
3. Should the project be accepted if WACC = 10%?
   -Select-Yes or no
   
   Should the project be accepted if WACC = 20%?
   -Select-Yes or no
4. 
   
5. 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. The input in the box below will not be graded, but may be reviewed and considered by your instructor.
   
6. 
   
7. What is the project's MIRR at WACC = 10%? Round your answer to two decimal places. Do not round your intermediate calculations.
   _____%
   
   What is the project's MIRR at WACC = 20%? Round your answer to two decimal places. Do not round your intermediate calculations.
   _____ %
   
   Does MIRR lead to the same accept/reject decision for this project as the NPV method?
   -Select-Yes or no
   
   Does the MIRR method always lead to the same accept/reject decision as NPV? (Hint: Consider mutually exclusive projects that differ in size.)
   -Select-Yes or no

Answer 1

SKETCH MISSING