Question
In: Finance
You are considering constructing a new plant in a remote wilderness area to process the ore...
You are considering constructing a new plant in a remote wilderness area to process the ore from a planned mining operation. You anticipate that the plant will take a year to build and cost $100 million upfront. Once built, it will generate cash flows of $15 million at the end of every year over the life of the plant. The plant will be useless 20 years after its completion once the mine runs out of ore. At that point you expect to pay $200 million to shut the plant down and restore the area to its pristine state. Using a cost of capital of 12%,
(please answer it in Excel with )
| a. | What is the NPV of the project? | ||||||
| b. | Is using the IRR rule reliable for this project? | ||||||
| c. | What is the IRR of this project? Find the non-zero IRR. | ||||||
| Upfront costs | $100 | ||||||
| Annual cash flows (million) | $15 | ||||||
| Number of periods (years) | 20 | ||||||
| Closing costs (million) | $200 | ||||||
| Cost of capital | 12% | ||||||
Solutions
Expert Solution
Hope you understood the solution. If you have any doubt please leave your doubt in the comment section so that I can clarify your doubt.
Thank you.
jeff jeffy answered 1 year agoRelated Solutions
You are considering constructing a new plant in a remote wilderness area to process the ore...
You are considering constructing a new plant in a remote
wilderness area to process the ore from a planned mining operation.
You anticipate that the plant will take a year to build and
cost
$ 100
million upfront. Once? built, it will generate cash flows of
$ 16
million at the end of every year over the life of the plant. The
plant will be useless
20
years after its completion once the mine runs out of ore. At
that...
You are considering constructing a new plant in a remote wilderness area to process the ore...
You are considering constructing a new plant in a remote
wilderness area to process the ore from a planned mining operation.
You anticipate that the plant will take a year to build and cost
$120 million upfront. Starting in t=1, it will generate cash flows
of $19 million at the end of every year over the life of the plant.
The plant will be useless 20 years later, once the mine runs out of
ore. In t=21 you expect to...
You are considering constructing a new plant in a remote wilderness area to process the ore...
You are considering constructing a new plant in a remote
wilderness area to process the ore from a planned mining operation.
You anticipate that the plant will take a year to build and cost $
96 million upfront. Once built, it will generate cash flows of $
16 million at the end of every year over the life of the plant. The
plant will be useless 20 years after its completion once the mine
runs out of ore. At that...
1. There is a small pool of oil in a remote wilderness area in a northern...
1. There is a small pool of oil in a remote wilderness
area in a northern state. Geologists expect it to yield a net
profit of $50 million at today’s prices for five years, and then
fizzle out. Assume that $50 million can be taken immediately.
Economists think the relative price of oil (and net profits) will
rise at 4%, and the government has agreed to use a real discount
rate of 3% for the oil project calculations. Environmentalists
argue...
A company is in the process of constructing a new plant at a cost of $16...
A company is in the process of constructing a new plant at a
cost of $16 million. It expects the project to generate cash flows
of $9 million, $6 million, and $11 million over the next three
years. The cost of capital is 18.9 percent p.a. What is the net
present value of this project? (in millions to three decimals)
A company is considering constructing a plant to manufacture a proposed new product. The land costs...
A company is considering constructing a plant to manufacture a
proposed new product. The land costs $350,000, the building costs
$500,000, the equipment costs $250,000, and $80,000 additional
working capital is required. It is expected that the product will
result in sales of $750,000 per year for 8 years, at which time
the land can be sold for $350,000, the building for $350,000, and
the equipment for $40,000.All of the working capital would be
recovered at the EOY 8.The annual...
A company is considering constructing a plant to manufacture a proposed new product. The land costs...
A company is considering constructing a plant to manufacture a
proposed new product. The land costs $300,000 the building costs
$600,000 the equipment costs $250,000 and $100,000 additional
working capital is required. It is expected that the product will
result in sales of $750,000 per year for 10 years, at which time
the land can be sold for $400,000, the building for $350,000, and
the equipment for $50,000. All of the working capital would be
recovered at the end of...
A company is considering constructing a new factory and is considering funding it by issuing a...
A company is considering constructing a new factory and is
considering funding it by issuing a corporate bond to the value of
$9m. The bond would have a term to maturity of 12 years, a coupon
rate of 3.0% and the bond would be sold into the market at expected
yield of 2.8%. Show how an immunisation portfolio could be
constructed from the bonds below if the CB cut interest rates by
0.50% over the next year. Show how this...
You are considering opening a new plant. The plant will cost $103.9 million up front and...
You are considering opening a new plant. The plant will cost
$103.9
million up front and will take one year to build. After that it
is expected to produce profits of
$30.4
million at the end of every year of production. The cash flows
are expected to last forever. Calculate the NPV of this investment
opportunity if your cost of capital is
7.5%.
Should you make the investment? Calculate the IRR and use it to
determine the maximum deviation allowable...
You are considering opening a new plant. The plant will cost $97.9 million up front and...
You are considering opening a new plant. The plant will cost
$97.9 million up front and will take one year to build. After that
it is expected to produce profits of $30.4 million at the end of
every year of production. The cash flows are expected to last
forever. Calculate the NPV of this investment opportunity if your
cost of capital is 7.8%.
Should you make the investment? Calculate the IRR and use it to
determine the maximum deviation allowable...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Use the bond term's below to answer the question Maturity 7 years Coupon Rate 4% Face...
- What experience have you had with Organization Development or with Change Management? Describe the organization, the...
- 1. Renfro Rentals has issued bonds that have a 12% coupon rate, payable semiannually. The bonds...
- Given an array of positive integers a, your task is to calculate the sum of every...
- Define “culture.” Software is defined by the Merriam-Webster Dictionary as "the programs that run on a...
- In humans, hypotrichosis (sparse body hair) is a rare autosomal recessive condition. Let h = hypotrichosis...
- Increase all of the listing prices by 5% for all listings under $500,000 and 10% for...
ADVERTISEMENT