Question
Mexiplata, a silver mining company in Mexico, is considering a mining project that will have an initial cost of $4.5 million and generate revenues of
Mexiplata, a silver mining company in Mexico, is considering a mining project that will have an initial cost of $4.5 million and generate revenues of $3.5 million per year for three years. During the fourth year, the mine will be shut down and there will be substantial clean-up costs to restore the land to its original state, (a process that will be completed during the fourth year.) Mexiplata is considering an alternative mining project which will cost $2 and generate revenues of $1.5 million per year for four years but which does not involve clean-up costs. Mexiplata's weighted average cost of capital is 14%. What must be the clean-up costs during year 4 of the first project in order for Mexiplata to be indifferent between the two projects?
Select one:
a. $2.625543 million
b. $2.119887 million
c. $1.255144 million
d. $1.788672 million
e. $1.528137 million
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started