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Capital budgeting criteria: ethical considerations
A mining company is considering a new project. Because the mine has received a permit, the project would be legal; but it would cause significant harm to a nearby river. The firm could spend an additional $11 million at Year 0 to mitigate the environmental Problem, but it would not be required to do so. Developing the mine (without mitigation) would cost $69 million, and the expected net cash inflows would be $23 million per year for 5 years. If the firm does invest in mitigation, the annual inflows would be $24 million. The risk adjusted WACC is 13%.
Calculate the NPV and IRR with mitigation. Round your answers to two decimal places. Enter your answer for NPV in millions. For example, an answer of $10,550,000 should be entered as 10.55.
NPV $ million
IRR %
Calculate the NPV and IRR without mitigation. Round your answers to two decimal places. Enter your answer for NPV in millions. For example, an answer of $10,550,000 should be entered as 10.55.
An investor writes (or sells) one put option contract. If the price of gold in the spot market at the maturity date of the option is $1095, what is her profit-loss - The spot rate for the euro when the forward contract matures is $1.50/€. What is h..
A firm has a debt- equity ratio of 1.0. The required return on the firm’s assets is 16.1% and the pretax cost of debt is 9.1%. Ignore taxes. What is the firm's cost of equity?
Find the duration of a 6% coupon bond making annual coupon payments if it has three years until maturity and a yield to maturity of 6.2%. What is the duration if the yield to maturity is 10.2%?
How do you think the yield curve will change during this time? Offer some logic or current reference(s) to support your answers.
Discuss the implications of such underpricing to established theories of market efficiency and explain the role market efficiency might play in the underpricing theories presented by Loughran and Ritter.
Carry-ALL plans to sell 1,300 carriers next year and has budgeted sales of $46,000 and profits of $22,000. Variable costs are projected to be $20 per unit. Michael Co. offers to pay $24,500 to buy 570 units from Carry-ALL.
Speculate as to why Kraft chose not to divest its grocery business and use the proceeds either to reinvest in its faster-growing snack business, to buy back its stock, or a combination of the two.
Peace of Mind, Inc. (PMI), sells extended warranties for durable consumer goods such as washing machines and refrigerators. When PMI sells an extended warranty, it receives cash up front from the customer, but later PMI must cover any repair costs th..
The cost of debt is lower than the costs of stocks. Cost of Preferred stock is higher than the cost of common stocks.
Determine the effective price at which you purchased your coffee. How do you account for the difference in amounts for the spot and hedge positions?
You are in the role of a consultant with ten years experience in the public financial management industry. A group of 20 civic leaders are considering forming a new task force and have asked you to prepare a proposal on whether they should build a fa..
Filer manufacturing has 8 million shares of common stock outstanding. The current share price is $87, and the book value per share is $6. Filer manufacturing also has two bond issues outstanding. The first bond issue has a face value of $75 million a..
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