Should the firm make the investment

Assignment Help Financial Management

Reference no: EM13937178

Tangshan Mining Company is considering investing in a new mining project. The firm’s cost of capital is 12 percent and the project is expected to have an initial cost of $5,000,000. Furthermore, the project is expected to provide after-tax operating cash flows of $2,500,000 in year 1, $2,300,000 in year 2, $2,200,000 in year 3 and $1,300,000 in year 4

(a) Calculate the project’s NPV.

(b) Should the firm make the investment?

Reference no: EM13937178

Questions Cloud

What is the price of this preferred stock : Tell Corporation plans a new issue of preferred stock paying annual dividend $5 per share. Similar risk stock currently offers an annual return to investors of 17%. What is the price of this preferred stock?

What will be the market price of such bond : A firm is planning to issue $50 million debts. Each bond will have a par value of $1,000, a coupon of 9% paid annually, and maturity period of 25 years. If the market rate for such bond is 12%, what will be the market price of such bond and how many ..

Calculate the price value of basis point and the yield value : Calculate the price value of a basis point and the yield value of a price change for a 30-year US Treasury bond with a coupon of 5%, a maturity date of 8/15/2042, a settlement date of 10/29/2012, and a price of 101:24.

Firm is evaluating two projects : A firm is evaluating two projects X and Z. Project X has an initial investment of $80,000 and cash inflows at the end of each of the next five years of $25,000. Project Z has a initial investment of $120,000 and cash inflows at the end of each of the..

Should the firm make the investment : Tangshan Mining Company is considering investing in a new mining project. The firm’s cost of capital is 12 percent and the project is expected to have an initial cost of $5,000,000. Calculate the project’s NPV. Should the firm make the investment?

Firm is evaluating a proposal which has initial investment : A firm is evaluating a proposal which has an initial investment of $50,000 and has cash flows of $15,000 per year for five years. Calculate the payback period of the project. If the firm’s maximum acceptable payback period is 3 years, should the firm..

Market risk premium is estimated-cost of capital : The common stock of Gulf Corp. has a beta of 0.8. The Treasury bill rate is 4 percent and the market risk premium is estimated at 8 percent. Gulf Corp.'s capital structure is 25 percent debt paying a 5 percent interest rate, and 75 percent equity. wh..

What is the hedge ratio of the put : Two-state put option value: S0=100, X=115; 1+r=1.10. The two possibilities for S(T) are 125 and 85. what is the hedge ratio of the put? given that the stock currently is selling at 100, compute the value of the put option.

Should they finance it with the bank or with sears : Karen and Wayne need to buy a refrigerator because theirs just broke. Unfortunately, their savings account is depleted, and they will need to borrow money in order to buy a new one. The bank offers them a personal loan at 21% (APR), and Sears Sears o..

User Account

All Pages