Rearden Metals is considering opening a strip mining operation to provide some of the raw materials needed in producing Rearden metal. The initial purchase of the land and the associated costs of opening up mining operations will cost $100 million today. The mine is expected to generate $16 million worth of ore per year for the next 12 years. At the end of the 12th year Rearden will need to spend $20 million to restore the land to its original pristine nature appearance. The number of potential IRRS that exist for Rearden's mining operation is equal to: OA. 2 B. 1 O C. 12 OD. 0
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- Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.Rearden Metals is considering opening a strip mining operation to provide some of the raw materials needed in producing Rearden metal. The initial purchase of the land and the associated costs of opening up mining operations will cost $100 million today. The mine is expected to generate $16 million worth of ore per year for the next 12 years. At the end of the 12th year Rearden will need to spend $20 million to restore the land to its original pristine nature appearance.The payback period for Rearden's mining operation is closest to:The company is considering opening a strip mine in The Gunnedah Basin on 5,000 acres of land purchased 10 years ago for $12 million. Based on a recent appraisal, the company feels it could receive $15.5 million if it sold the land today. Because it is currently operating at full capacity, 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 bedepreciated 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.However, WHC plans to open another strip mine at that time and will use the equipment at the new mine. The equipment also requires staff to be specially trained; fortunately, a similar…
- The company is considering opening a strip mine in The Gunnedah Basin on 5,000 acres of land purchased 10 years ago for $12 million. Based on a recent appraisal, the company feels it could receive $15.5 million if it sold the land today. Because it is currently operating at full capacity, 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 bedepreciated 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.However, WHC plans to open another strip mine at that time and will use the equipment at the new mine. The equipment also requires staff to be specially trained; fortunately, a similar equipment…A piece of land may be purchased for $610,000 to be strip-mined for the underlying coal. Annual net income will be $200,000 for 10 years. At the end of 10 years, the surface of the land will be restored as required by a federal law on strip-mining. The reclamation will cost $1.5 million more than the land’s resale value after it is restored. Is this a desirable project, if the minimum attractive rate of return is 10%?Oil Drilling company is considering the installation of new automated drilling equipment. The new equipment can be installed for $13,000,000 today and will have a life of 6 years until technological obsolescence due to rapid advances in drilling control technology. At the end of its 6-year life, its components will have a salvage value of $2,900,000, and it will cost $220,000 to have the equipment removed. The equipment will be depreciated under MACRS. The equipment will produce $7,975,000 additional sales capacity per year due to productivity gains. Additional technical labor cost will be $2,205,000 per year, and operating and maintenance costs will be $850,000 per year. The company is in a western state with no corporate income taxes and is in the 35% federal tax bracket. Estimate both the annual net income and annual cash flow. The company’s MARR for this project is 20.0%. Based on the net present value estimate, do you recommend installing the automated refining line? What is the…
- Maize Company is considering purchasing a new machine as a capital investment. The details of the new machine are summarized below: The cost of the machine will be $400,000. The machine has a useful life of five (5) years. The cost of the machine will be depreciated on a straight-line basis to a terminal disposal value of zero. The investment requires working capital of $30,000 upon purchase of the new machine. This working capital is expected to be fully recovered at the end of the project. The annual cost savings if the new machine is acquired will be $95,000. The machine’s salvage value at the end of five years is expected to be $15,000. Maize pays taxes at a rate of 35%. Maize has a required rate of return of 8%. a. Calculate the net present value (NPV) of the project (round your solution to dollars). Calculate the net present value (NPV) of the project (round your solution to dollars). What is the payback period of the project (round your solution to two decimal places)?…TaiGueLe Enterprises, Inc. is considering launching a new corporate project. The company will have to make Capital Investments, Working Capital investments, andgenerate Cash Flows from Operating the new project. The Equipment required for the project will cost $9,000,000 today, will last for six years (the length of the project),and is estimated at the time of purchase to sell for $600,000 at the end of its life. The company uses Straight-Line depreciation and has a Tax Rate of 27%. The appropriate discount rate for the risks involved is 15%. Operating estimates for the project follow: Shown in picture Per your DCF analysis of the project, what is the cash flow from the change in net working capital in year six ?Serkin Corporation is considering an investment in a new product line. The investment would require an immediate outlay of $100,000 for equipment and an immediate investment of $200,000 in working capital. The investment is expected to generate a net cash inflow of $100,000 in year 1, $150,000 in year 2, and $200,000 in years 3 and 4. The equipment would be scrapped (for no salvage) at the end of the fourth year and the working capital would be liquidated. The equipment would be fully depreciated by the straight-line method over its four-year life. Refer to Serkin Corporation. If Serkin uses a discount rate of 16 percent, what is the NPV of the proposed product line investment? Round off the PV factor to 4 decimal places. Refer to Serkin Corporation. What is the payback period for the investment in years?
- You own a coal mining company and are considering opening a new mine. The mine itself will cost $116.1 million to open. If this money is spent immediately, the mine will generate $21.2 million for the next 10 years. After that, the coal will run out and the site must be cleaned and maintained at environmental standards. The cleaning and maintenance are expected to cost $1.9 million per year in perpetuity. What does the IRR rule say about whether you should accept this opportunity? If the cost of capital is 8.2%, what does the NPV rule say? What does the IRR rule say about whether you should accept this opportunity? (Select the best choice below.) A. There are two IRRS, so you cannot use the IRR as a criterion for accepting the opportunity. B. Accept the opportunity because the IRR is greater than the cost of capital. C. The IRR is r= 11.65%, so accept the opportunity. D. Reject the opportunity because the IRR is lower than the 8.2% cost of capital. The NPV using the cost of capital of…Riverview Company is evaluating the proposed acquisition of a new production machine. The machine's base price is $200,000, and installation costs would amount to $28,000. Also, $10,000 in net working capital would be required at installation. The machine will be depreciated for 3 years using simplified straight line depreciation. The machine would save the firm $110,000 per year in operating costs. The firm is planning to keep the machine in place for 2 years. At the end of the second year, the machine will be sold for $100,000. Riverview has a cost of capital of 12% and a marginal tax rate of 34%. What is the NPV of the project? O $3,875 O $19,016 $12,155 O $9,555 O - $9,783Riverview Company is evaluating the proposed acquisition of a new production machine. The machine's base price is $200,000, and installation costs would amount to $28,000. Also, $10,000 in net working capital would be required at installation. The machine will be depreciated for 3 years using simplified straight line depreciation. The machine would save the firm $110,000 per year in operating costs. The firm is planning to keep the machine in place for 5 years. At the end of the fifth year, the machine will be sold for $20,000. Riverview has a cost of capital of 12% and a marginal tax rate of 34%.What is the NPV of the project?