Question
Assume that you are a financial analyst for Tangshan Mining Company and are given the following information about the firms new project: the projects initial
Assume that you are a financial analyst for Tangshan Mining Company and are given the following
information about the firms new project: the projects initial after-tax cost at t = 0 is $5,000,000 and
the project is expected to provide after-tax operating cash inflows as follows:
Year | Cash Inflow: |
One | $1,800,000 |
Two | $1,900,000 |
Three | $700,000 |
Four | $1,800,000 |
a. Calculate the payback period for this project.
1. If the maximum acceptable payback period is 4 years, should this project be accepted? Why or why not?
b. Assume that the firms Weighted Average Cost of Capital (WACC) is 12%. Calculate the
Net Present Value (NPV) for the above project.
c. Based on your NPV calculations above, should this project be accepted? Why or why not?
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