is this right can u check. show work in word The Western Railway Company (WRC) has been offered a 100-year contract to haul a fixed amount ofcoal each year from Wyoming to Illinois. Under the terms of the agreement, WRC will receive$4,200,000 now in exchange for its hauling services valued at $360,000 at the end-of-year one (EOY 1),$375,000 at EOY 2 and continuing to grow by $15,000 per year through EOY 100. If the WRC's cost ofcapital is 12% per year, is this a profitable agreement for WRC?Present Value of a growing annuityPV = CPV= 360,000-− 1(1 + g)¯`r-g- (1+0.12)--100'-0.12 0.00015= $19,942,704.00PV is > than Initial Payment so the agreement is profitable.

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Answered: The Western Railway Company (WRC) has…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 3P

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The Western Railway Company (WRC) has been offered a 100-year contract to haul a fixed amount of coal each year fromWyoming to Illinois. Under the terms of the agreement, WRC will receive $4,200,000 now in exchange for its hauling services valued at $360,000 at the end of year (EOY) one, $375,000 at EOY 2 and continuing to grow by $15,000 per year through EOY 100. If WRC’s cost of capital is 12% per year, is this a profitable agreement for WRC?
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WHC will need to purchase additional necessary equipment, which will cost $77 million. To get the equipment in running order, there would be a $2 million shipping fee and a $3 million installation charge. The equipment will be depreciated to zero on a straight-line basis over its economic life of 15 years. The contract runs for only eight years. At that time the coal from the site will be entirely mined. The company feels that the equipment can be sold for 10 percent of its initial purchase price in eight years. Instead of purchasing the equipment, your team, being experienced consultants, wishes to propose to WHC that they have another option which is leasing it. Coincidently, your other client, Resolute Leasing Limited (RLL), may be a suitable lessor. On discussions, the executives at RLL have asked you to prepare a lease quotation that could be forwarded to WHC for consideration. For the purpose, RLL has provided the following information: • RLL can get a 20% discount on the…

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