CNCT ACC CORPORATE FINANCE
12th Edition
ISBN: 9781264604081
Author: Ross
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Question
Chapter 7, Problem 22QAP
Summary Introduction
Introduction: NPV refers to the capital budgeting technique where the
To compute: Value of the option to wait.
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Parkville Mining is considering opening a new self sustaining gold mine at a cost today of $1,000,000. Beginning one year from today, this mine will produce $100,000 worth of gold every year for 10 years. After that, the value of gold produced will be $50,000 forever. If Parkville Mining 's appropriate interest rate is 8%, then the NPV of this gold mine is closest to:
Group of answer choices
$2,592,016
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Chî Mining Corporative is set to open a gold mine in Mansa. According to the evaluations made this far, the mine will cost 900,000 to open and will have an economic life of 11 years. It will generate a cash inflow of 175,000 at the end of the first year, and the cash inflows are projected to grow at 8% per year for the next 10 years. It is projected that the mine will be abandoned in the 11th year. Abandonment costs are expected to be 125,000 at the end of year 11. The required return for the investors is 10%. Using the internal rate of return (IRR),
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A mining company is deciding whether to open a strip mine,which costs $2 million. Cash inflows of $13 million would occur at the end of Year 1. Theland must be returned to its natural state at a cost of $12 million, payable at the end ofYear 2.a. Plot the project’s NPV profile.b. Should the project be accepted if WACC = 10%? If WACC = 20%? Explain your reasoning.c. Think of some other capital budgeting situations in which negative cash flows duringor at the end of the project’s life might lead to multiple IRRs.d. What is the project’s MIRR at WACC = 10%? At WACC =20%? Does MIRR lead tothe same accept/reject decision for this project as the NPV method? Does the MIRRmethod always lead to the same accept/reject decision as NPV? (Hint: Considermutually exclusive projects that differ in size.)
Chapter 7 Solutions
CNCT ACC CORPORATE FINANCE
Ch. 7 - Forecasting Risk What is forecasting risk? In...Ch. 7 - Sensitivity Analysis and Scenario Analysis What is...Ch. 7 - Prob. 3CQCh. 7 - Break-Even Point As a shareholder of a firm that...Ch. 7 - Prob. 5CQCh. 7 - Real Options Why does traditional NPV analysis...Ch. 7 - Real Options The Mango Republic has just...Ch. 7 - Prob. 8CQCh. 7 - Prob. 9CQCh. 7 - Project Analysis You are discussing a project...
Ch. 7 - Sensitivity Analysis and Break-Even Point We are...Ch. 7 - Prob. 2QAPCh. 7 - Prob. 3QAPCh. 7 - Prob. 4QAPCh. 7 - Prob. 5QAPCh. 7 - Prob. 6QAPCh. 7 - Prob. 7QAPCh. 7 - Prob. 8QAPCh. 7 - Prob. 9QAPCh. 7 - Prob. 10QAPCh. 7 - Prob. 11QAPCh. 7 - Prob. 12QAPCh. 7 - Prob. 13QAPCh. 7 - Prob. 14QAPCh. 7 - Prob. 15QAPCh. 7 - Prob. 16QAPCh. 7 - Prob. 17QAPCh. 7 - Prob. 18QAPCh. 7 - Prob. 19QAPCh. 7 - Prob. 20QAPCh. 7 - Prob. 21QAPCh. 7 - Prob. 22QAPCh. 7 - Prob. 23QAPCh. 7 - Prob. 24QAPCh. 7 - Prob. 25QAPCh. 7 - Prob. 26QAPCh. 7 - Prob. 28QAPCh. 7 - Prob. 29QAPCh. 7 - Prob. 30QAP
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