Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Chapter 12, Problem 19P

The Ulmer Uranium Company is deciding whether or not to open a strip mine whose net cost is $4.4 million. Net cash inflows are expected to be $27.7 million, all coming at the end of Year 1. The land must be returned to its natural state at a cost of $25 million, payable at the end of Year 2.

  1. a. Plot the project’s NPV profile.
  2. b. Should the project be accepted if r = 8%? If r = 14%? Explain your reasoning.
  3. c. Can you 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?
  4. d. What is the project’s MIRR at r = 8%? At r = 14%? Does the MIRR method lead to the same accept-reject decision as the NPV method?
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A mining company is deciding whether to open a strip mine with an initial outlay at t = 0 of $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 so there is a cash outflow of $11.5 million, payable at the end of Year 2. a. Select the project's NPV profile. NPV (Millions of Dollars) (Millions of Dollars (Milions of Dollars) །།། 2.5 1.5 100 WACC (%) 300 400 500 WACC (%) WACC (%) NPV (Millions of Dollars) D 2.5 1.5 0.5 0.5 100 200 300 400 500 WACC (%) The correct sketch is -Select- b. Should the project be accepted if WACC = 10%? -Select- Should the project be accepted if WACC = 20%? -Select- c. What is the project's MIRR at WACC = 10%? Do not round intermediate calculations. Round your answer to two decimal places. % What is the project's MIRR at WACC = 20%? Do not round intermediate calculations. Round your answer to two decimal places. % Does MIRR lead to the same accept/reject decision for this project as the NPV…
The Ulmer Uranium Company is deciding whether or not to open a strip mine whose net cost is $4.4 million. Net cash inflows are expected to be $27.7 million, all coming at the end of Year 1. The land must be returned to its natural state at a cost of $25 million, payable at the end of Year 2. a. Select the correct graph for the project's NPV profile. % NPV(Millions of Dollars) frete % -1 ㅋ A Discount Rate (%) 100 200 300 400 The correct graph is [-Select- V b. Should the project be accepted if r = 6%? Explain your reasoning. The project -Select- ✓ be accepted because NPV is-Select- ✓ Should the project be accepted if r = 11%? Explain your reasoning. The project -Select- be accepted because NPV is -Select- c. What is the project's MIRR at r = 6%? Do not round intermediate calculations. Round your answer to two decimal places. What is the project's MIRR at r = 11%? Do not round intermediate calculations. Round your answer to two decimal places. 100 200 -1 Discount Rate (%) -2 -3 B NPV at…
You are considering a project with the following financial data: Required initial investment at n = 0: $50M Project life: 10 years Estimated annual revenue: $X (unknown) Estimated annual operating cost: $15M Required minimum return 20% per year Salvage value of the project: 15% of the initial investment What is the minimum annual revenue (in $M) must be generated to make the project worthwile? a. X = 26.64 M b. X = 32.47 M c. X = 28.38 M d. X = 35.22 M

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Intermediate Financial Management (MindTap Course List)

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Capital Budgeting Introduction & Calculations Step-by-Step -PV, FV, NPV, IRR, Payback, Simple R of R; Author: Accounting Step by Step;https://www.youtube.com/watch?v=hyBw-NnAkHY;License: Standard Youtube License