The Ulmer Uranium Company is deciding whether or not it should open a strip mine whose net
Question:
The Ulmer Uranium Company is deciding whether or not it should open a strip mine whose net cost is $4.4 million. Net cash inflows are expected to be $27.7 million, all coming at the end of Year 1. The land must be returned to its natural state at a cost of $25 million, payable at the end of Year 2.
a. Plot the project’s NPV profile.
b. Should the project be accepted if r = 8%? If r = 14%? Explain your reasoning.
c. Can you think of some other capital budgeting situations in which negative cash flows during or at the end of the project’s life might lead to multiple IRRs?
d. What is the project’s MIRR at r = 8%? At r = 14%? Does the MIRR method lead to the same accept–reject decision as the NPV method?
Capital budgeting is a practice or method of analyzing investment decisions in capital expenditure, which is incurred at a point of time but benefits are yielded in future usually after one year or more, and incurred to obtain or improve the...
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Corporate Finance A Focused Approach
ISBN: 978-1439078082
4th Edition
Authors: Michael C. Ehrhardt, Eugene F. Brigham