Mat-i dam complex on the Madaguing River in Claveria will have an installed capacity inexcess of 11,000 MW. The project is expected to cost P1.60 billion and will beginproducing electricity upon completion by the end of 2019 after the 5-year constructionperiod. Even though the dam will provide clean energy for millions of people,environmentalists are sharply opposed. They say it will devastate wildlife and thelivelihoods of 40,000 people who live in the area to be flooded. Assume that the fundingwill occur evenly over the 5-year construction period (i.e., 0.32 billion per year), and thatthe disbenefits will be P6,000 for each displaced person and P100 million for wildlifedestruction. Further, assume the disbenefits will occur evenly through the 5-yearconstruction period and the benefits will begin in 2020 and continue indefinitely. At adiscount rate of 8% per year, use the B/C ratio to determine the minimum annual benefitsrequired to economically justify the project.

B/C ratio is ratio present value of benefits to ratio present value of cost and it should be…

electricity upon completion by the end of 2019 afte en though the dam will provide clean energy talists are sharply opposed. They say it will de of 40,000 people who live in the area to be flooded. venly over the 5-year construction period (i.e., 0.32 efits will be P6,000 for each displaced person and . Further, assume the disbenefits will occur eve period and th afte 2000

electricity upon completion by the end of 2019 afte en though the dam will provide clean energy talists are sharply opposed. They say it will de of 40,000 people who live in the area to be flooded. venly over the 5-year construction period (i.e., 0.32 efits will be P6,000 for each displaced person and . Further, assume the disbenefits will occur eve period and th afte 2000

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 28P: Friedman Company is considering installing a new IT system. The cost of the new system is estimated...

See similar textbooks

Similar questions

To overcome the impacts of saltwater intrusion, San Diego County is planning to build a Seawater Desalination Plant. Construction of the facility will take three years and cost $15,000,000. The facility has an operating life of 47 years which starts in three years (after completing the construction phase). The entire project, therefore, spans 50 years. There is no inflation during the entire life of the project, and that all benefits and costs are known with certainty (rather unlikely assumptions but OK for early planning). The operating costs are $100,000 per year. The project will treat 30,000,000 gallons of water per year, and analytical investigations have suggested that the project produces the benefit of $0.05 per gallon of the treated water. The state is going to provide a loan to finance 40% of the capital cost ($15M) at a borrowing rate of 6.25% with 20 equal annual payments, including principal and interest. Considering MARR of 10% please answer eh following questions. With…
An electric utility is considering a new power plant in northern Arizona. Power from the plant would be sold in the Phoenix area, where it is badly needed. Because the firm has received a permit, the plant would be legal; but it would cause some air pollution. The company could spend an additional $40 million at Year 0 to mitigate the environmental problem, but it would not be required to do so. The plant without mitigation would require an initial outlay of $269.75 million, and the expected cash inflows would be $90 million per year for 5 years. If the firm does invest in mitigation, the annual inflows would be $93.85 million. Unemployment in the area where the plant would be built is high, and the plant would provide about 350 good jobs. The risk adjusted WACC is 17%. Calculate the NPV and IRR with mitigation. Enter your answer for NPV in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative values, if any, should be indicated by a minus sign. Do not…
An electric utility is considering a new power plant in northern Arizona. Power from the plant would be sold in the Phoenix area, where it is badly needed. Because the firm has received a permit, the plant would be legal; but it would cause some air pollution. The company could spend an additional $40 million at Year 0 to mitigate the environmental problem, but it would not be required to do so. The plant without mitigation would require an initial outlay of $269.87 million, and the expected cash inflows would be $90 million per year for 5 years. If the firm does invest in mitigation, the annual inflows would be $93.62 million. Unemployment in the area where the plant would be built is high, and the plant would provide about 350 good jobs. The risk adjusted WACC is 16%. Calculate the NPV and IRR with mitigation. Enter your answer for NPV in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative values, if any, should be indicated by a minus sign. Do not…
Two sites are currently under consideration for a bridge over a small river. The north site requires a suspension bridge. The south site has a much shorter span, allowing for a truss bridge, but it would require new road construction.The suspension bridge will cost $500 million with annual inspection andmaintenance costs of $350,000. In addition, the concrete deck would have to be resurfaced every 10 years at a cost of $1,000,000. The truss bridge and approach roads are expected to cost $250 million and have annual maintenance costs of $200,000. This bridge would have to be painted every 3 years at a cost of $400,000. In addition, the bridge would have to be sandblasted every 10 years at a cost of $1,900,000. The cost of purchasing right-of-way is expected to be $20 million for the suspension bridge and $150 million for the truss bridge. Compare the alternatives on the basis of their capitalized cost if the interest rate is 6% per year.
A toll bridge across the Mississippi River is being considered as a replacement for the current I-40 bridge linking Tennessee to Arkansas. Because this bridge, if approved, will become a part of the U.S. Interstate Highway system, the B–C ratio method must be applied in the evaluation. Investment costs of the structure are estimated to be $17,500,000, and $325,000 per year in operating and maintenance costs are anticipated. In addition, the bridge must be resurfaced every fifth year of its 30-year projected life at a cost of $1,250,000 per occurrence (no resurfacing cost in year 30). Revenues generated from the toll are anticipated to be $2,500,000 in its first year of operation, with a projected annual rate of increase of 2.25 % per year due to the anticipated annual increase in traffic across the bridge. Assuming zero market (salvage) value for the bridge at the end of 30 years and aMARR of 10% per year, should the toll bridge be constructed ?
The City of San Antonio is considering various options for providing water in its 50-year plan, including desalting. One brackish aquifer is expected to yield desalted water that will generate revenue of $4.1 million per year for the first 6 years, after which less production will decrease revenue by 10% per year each year. If the aquifer will be totally depleted in 24 years, what is the present worth of the desalting option revenue at an interest rate of 5% per year? The present worth of the desalting option revenue at an interest rate of 5% per year is determined to be $
The City of San Antonio is considering various options for providing water in its 50-year plan, including desalting. One brackish aquifer is expected to yield desalted water that will generate revenue of $4.1 million per year for the first 4 years, after which less production will decrease revenue by 10% per year each year. If the aquifer will be totally depleted in 20 years, what is the present worth of the desalting option revenue at an interest rate of 6% per year?
A permanent flood-control dam is expected to have an initial cost of $2.8 million and an annual M&O cost of $20,000. In addition, minor reconstruction will be required every 5 years at a cost of $200,000. As a result of the dam, flood damage will be reduced by an average of $310,000 per year. Using an interest rate of 6% per year, the conventional B/C ratio will be closest to: (a) 0.46 (b) 1.02 (c) 1.40 (d) 1.96
A mining company is considering a new project. Because the mine has received a permit, the project would be legal; but it would cause significant harm to a nearby river. The firm could spend an additional $10 million at Year 0 to mitigate the environmental Problem, but it would not be required to do so. Developing the mine (without mitigation) would cost $60 million, and the expected cash inflows would be $20 million per year for 5 years. If the firm does invest in mitigation, the annual inflows would be $21 million. The risk-adjusted WACC is 10%. Calculate the NPV and IRR with mitigation. Round your answers to two decimal places. Do not round your intermediate calculations. Enter your answer for NPV in millions. For example, an answer of $10,550,000 should be entered as 10.55.NPV $ millionIRR % Calculate the NPV and IRR without mitigation. Round your answers to two decimal places. Do not round your intermediate calculations. Enter your answer for NPV in millions. For example, an…
A mining company isconsidering a new project. Because the mine has received a permit, the project wouldbe legal, but it would cause significant harm to a nearby river. The firm could spend anadditional $10 million at Year 0 to mitigate the environmental problem, but it would notbe required to do so. Developing the mine (without mitigation) would cost $60 million,and the expected cash inflows would be $20 million per year for 5 years. If the firm doesinvest in mitigation, the annual inflows would be $21 million. The risk-adjusted WACCis 12%.a. Calculate the NPV and IRR with and without mitigation.b. How should the environmental effects be dealt with when this project is evaluated?c. Should this project be undertaken? If so, should the firm do the mitigation?
A power station in Al-Salmiya is expected to require an initial investment of 3.5 million KWD and Annual expenses of 95,000 KWD. The public benefits are valued at 400,000 KWD per year with an end-life market value of 300,000 KWD. The lifetime of this project is 25 years. If MARR is (ID/10)% per year, use the conventional benefit-to-cost ratio (B-C) method to determine if the project is economically acceptable or not
Former Green Bay Packers defensive tackle, Don Davey, is considering opening a Firehouse Sub Shop in Wauwatosa, Wisconsin. The new Fireside Sub Shop will require new sandwich-grilling equipment costing $598,000 that would be depreciated on a straight-line basis to zero over the 5-year life of the project. The grilling equipment will be salvaged for $181,000 at the end of the project. The Sub Shop project requires an initial investment of $42,000 in net working capital, which will be recovered at the end of the project. The tax rate is 35%. What is the Firehouse Sub Shop project’s IRR if it is expected to generate an annual operating cash flow of $176,600? a. 13.24% b. 18.39% c. 18.48% d. 16.87% e. 15.64%