You are evaluating a mining project that will require an initial investment outlay (time 0) of...

You are evaluating a mining project that will require an initial investment outlay (time 0) of $700,000. The project will generate cash flows of $200,000 in Year 1, $300,000 in Year 2, and $400,000 in Year 3. There are no cash flows beyond Year 3.

Show work in excel

A. What is the NPV of the project at a discount rate of 10%? Explain calculations.

B. What is the IRR of the project? Explain calculations.

C. Should you invest in the project if the appropriate discount rate for the project is 10%? Explain.

D. If there was a negative cash flow in Year 4 (perhaps because of site cleanup), which decision rule (NPV or IRR) would you choose to evaluate this project and why?

Solutions

Expert Solution

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

You are considering a project that will require an initial outlay of $200,000. This project has...

You are considering a project that will require an initial outlay of $200,000. This project has an expected life of five years and will generate after-tax cash flows to the company as a whole of $60,000 at the end of each year over its five-year life. Thus, the free cash flows associated with this project look like this. Given a required rate of return of 10% percent, calculate the following: Discounted payback period b. Net present value Profitability index...

You are evaluating a project for your company. The initial outlay for the project is $5,000,000,...

You are evaluating a project for your company. The initial outlay for the project is $5,000,000, and free cash flows for the project are $1,000,000, $3,000,000, $3,000,000, $4,000,000 and $4,000,000. For risk analysis, you utilize the Payback and Discounted Payback methods to trigger increased risk scrutiny. Your standard is, any project that goes longer than 3 years under either metric will go through these increased risk tests. If your required rate is 12%, does this project qualify for increased scrutiny?...

Fairfax Pizza is evaluating a project that would require an initial investment in equipment of 200,000...

Fairfax Pizza is evaluating a project that would require an initial investment in equipment of 200,000 dollars and that is expected to last for 6 years. MACRS depreciation would be used where the depreciation rates in years 1, 2, 3, and 4 are 40 percent, 33 percent, 19 percent, and 8 percent, respectively. For each year of the project, Fairfax Pizza expects relevant, incremental annual revenue associated with the project to be 346,000 dollars and relevant, incremental annual costs associated...

1) Fairfax Pizza is evaluating a project that would require an initial investment in equipment of...

1) Fairfax Pizza is evaluating a project that would require an initial investment in equipment of 300,000 dollars and that is expected to last for 6 years. MACRS depreciation would be used where the depreciation rates in years 1, 2, 3, and 4 are 40 percent, 34 percent, 18 percent, and 8 percent, respectively. For each year of the project, Fairfax Pizza expects relevant, incremental annual revenue associated with the project to be 567,000 dollars and relevant, incremental annual costs...

Middlefield Motors is evaluating project Z. The project would require an initial investment of 72,500 dollars...

Middlefield Motors is evaluating project Z. The project would require an initial investment of 72,500 dollars that would be depreciated to 13,000 dollars over 5 years using straight-line depreciation. The first annual operating cash flow of 27,500 dollars is expected in 1 year, and annual operating cash flows of 27,500 dollars are expected each year forever. Middlefield Motors expects the project to have an after-tax terminal value of 353,500 dollars in 5 years. The tax rate is 20 percent. What...

Gomi Waste Disposal is evaluating a project that would require an initial investment of 46,300 dollars...

Gomi Waste Disposal is evaluating a project that would require an initial investment of 46,300 dollars today. The project is then expected to produce annual cash flows that grow by 2.59 percent per year forever. The first annual cash flow is expected in 1 year and is expected to be 6,500 dollars. The project’s internal rate of return is 16.63 percent and its cost of capital is 8.38 percent. What is the net present value (NPV) of the project? They...

You are evaluating Project B requiring an initial investment of 50m in year 0 after which...

You are evaluating Project B requiring an initial investment of 50m in year 0 after which it will generate cash flows of 20m at the end of years 10 to 20. The cost of capital is 10%. a. What is the project’s NPV? b. What is its IRR? What is its payback period? d. What is its discounted payback period?

A company is evaluating a project that would require a $5 million investment today (t = 0).

Using Excel (if applicable),A company is evaluating a project that would require a $5 million investment today (t = 0). The after-tax cash flows would depend on whether a new property tax is imposed. There is a 75% chance that the tax will pass and 25% chance that it won't. If the tax passes, the project will produce after-tax cash flows of $1,200,000 at the end of each of the next 5 years. If the tax doesn't pass, the after-tax...

HW15-11) Middlefield Motors is evaluating project Z. The project would require an initial investment of 76,000...

HW15-11) Middlefield Motors is evaluating project Z. The project would require an initial investment of 76,000 dollars that would be depreciated to 11,000 dollars over 8 years using straight-line depreciation. The first annual operating cash flow of 27,500 dollars is expected in 1 year, and annual operating cash flows of 27,500 dollars are expected each year forever. Middlefield Motors expects the project to have an after-tax terminal value of 388,000 dollars in 4 years. The tax rate is 15 percent....

A). You are evaluating a project with the following cash flows: initial investment is $-12, and...

A). You are evaluating a project with the following cash flows: initial investment is $-12, and the expected cash flows for years 1 - 3 are $10, $11 and $17 (all cash flows are in millions of dollars). What is this projects NPV? The company's WACC is 10%. B). You are evaluating a project with an initial investment of $16.9 million dollars, and expected cash flows of $7 million dollars each for years 1-3. What is the project's simple payback?...

Subjects