Question

In: Finance

A mining company is deciding whether to open a strip mine, which costs $2.5 million. Cash...

A mining company is deciding whether to open a strip mine, which costs $2.5 million. Cash inflows of $13.5 million would occur at the end of Year 1. The land must be returned to its natural state at a cost of $12 million, payable at the end of Year 2.

  1. Plot the project's NPV profile.

       Plot the project's NPV profile.

       


  2. The correct sketch is -Select-ABCDItem 1 .
  3. Should the project be accepted if WACC = 10%?
    -Select-YesNoItem 2

    Should the project be accepted if WACC = 20%?
    -Select-YesNoItem 3
  4. 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.
  5. 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-YesNoItem 7

    Does the MIRR method always lead to the same accept/reject decision as NPV? (Hint: Consider mutually exclusive projects that differ in size.)
    -Select-YesNoItem 8

Solutions

Expert Solution

1.
PROVIDE GRAPH

2.
Do not accept

3.
Accept

4.
New product and warranty

5.
=MIRR({-2.5;13.5;-12},10%,10%)=9.3575%

6.
=MIRR({-2.5;13.5;-12},20%,20%)=22.2859%

7.
Yes

8.
No


Related Solutions

A mining company is deciding whether to open a strip mine, which costs $2.5 million. Cash...
A mining company is deciding whether to open a strip mine, which costs $2.5 million. Cash inflows of $13.5 million would occur at the end of Year 1. The land must be returned to its natural state at a cost of $12 million, payable at the end of Year 2. What is the project's MIRR at WACC = 10%? What is the project's MIRR at WACC = 20%?
A mining company is deciding whether to open a strip mine, which costs $2.5 million. Cash...
A mining company is deciding whether to open a strip mine, which costs $2.5 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 $11 million, payable at the end of Year 2. Find the project's MIRR at WACC = 10% and MIRR at WACC = 20%.
A mining company is deciding whether to open a strip mine, which costs $1.5 million. Cash...
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. Plot the project's NPV profile.     The correct sketch is -Select-ABCDItem 1 . Should the project be accepted if WACC = 10%? -Select-Yes or no Should the project be accepted...
A mining company is deciding whether to open a strip mine, which costs $1.5 million. Cash...
A mining company is deciding whether to open a strip mine, which costs $1.5 million. Cash inflows of $13.5 million would occur at the end of Year 1. The land must be returned to its natural state at a cost of $11.5 million, payable at the end of Year 2. Plot the project's NPV profile. The correct sketch is . Should the project be accepted if WACC = 10%? Should the project be accepted if WACC = 20%? Think of...
A mining company is deciding whether to open a strip mine, which costs $1.5 million. Cash...
A mining company is deciding whether to open a strip mine, which costs $1.5 million. Cash inflows of $12.5 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. 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...
A mining company is deciding whether to open a strip mine, which costs $2 million. Cash...
A mining company is deciding whether to open a strip mine, which costs $2 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 $11 million, payable at the end of Year 2. Should the project be accepted if WACC = 10%? -Select-Yes No Should the project be accepted if WACC = 20%? -Select-YesNoItem 3 Think of some other capital budgeting situations in...
MULTIPLE IRRS AND MIRR A mining company is deciding whether to open a strip mine, which...
MULTIPLE IRRS AND MIRR A mining company is deciding whether to open a strip mine, which costs $2.5 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. Plot the project's NPV profile. The correct sketch is . Should the project be accepted if WACC = 10%? Should the project be accepted if WACC...
MULTIPLE IRRS AND MIRR A mining company is deciding whether to open a strip mine, which...
MULTIPLE IRRS AND MIRR A mining company is deciding whether to open a strip mine, which costs $2 million. Cash inflows of $13 million would occur at the end of Year 1. The land must be returned to its natural state at a cost of $11 million, payable at the end of Year 2. Plot the project's NPV profile.     The correct sketch is -Select-ABCDItem 1 . Should the project be accepted if WACC = 10%? -Select-YesNoItem 2 Should the...
Salter mining Company purchased the Northern Tier Mine for $42 million cash. The mine was estimated...
Salter mining Company purchased the Northern Tier Mine for $42 million cash. The mine was estimated to contain 9.7 million tons of ore and to have a residual value of $1.1 million. During the first year of mining operations at the Northern Tier Mine, 60000 tons of ore were mined of which 14000 tons were sold a) preys journal to record depletion during the year B) Show how the Northern Tier Mine and it’s accumulated depletion would appear in Salter...
Salter Mining Company purchased the Northern Tier Mine for $34 million cash. The mine was estimated...
Salter Mining Company purchased the Northern Tier Mine for $34 million cash. The mine was estimated to contain 2.56 million tons of ore and to have a residual value of $1.6 million. During the first year of mining operations at the Northern Tier Mine, 80,000 tons of ore were mined, of which 12,000 tons were sold. a. Prepare a journal entry to record depletion during the year. b. Show how the Northern Tier Mine, and its accumulated depletion, would appear...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT