R cf r cf cf npv 1 1 1 2 2 1 1 0 16 866 14 1 000 2 14

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rCFrCFCFNPV)1(...)1()1(22110+++++++=16.866$%)141(000,2$%)141(000,2$%)141(000,2$%)141(000,2$%)141(000,2$000,6$54321=++++++++++-=0)1(...)1()1(22110=+++++++=NNIRRCFIRRCFIRRCFCFNPV
IRR = 19.86%Using Excel, MIRR = 17.12%PeriodCash flowCumulative (A)0-$6,000-$6,0001$2,000-$4,0002$2,000-$2,0003$2,000$04$2,000$2,0005$2,000$4,000PaybackDiscounted paybackProject BPeriodCash flowDiscounted CashflowCumulativediscounted CF0-$6,000-$6,000-$6,0001$2,000$1,754-$4,2462$2,000$1,539-$2,7073$2,000$1,350-$1,3574$2,000$1,184-$1735$2,000$1,039$8660)1(000,2$)1(000,2$)1(000,2$)1(000,2$)1(000,2$000,6$54321=++++++++++-=IRRIRRIRRIRRIRRNPVyearsS3000,2$000,2$2=+=NNrCFrCFrCFCFNPV)1(...)1()1(22110+++++++=25.225,1$%)141(600,5$%)141(600,5$%)141(600,5$%)141(600,5$%)141(600,5$000,18$54321=++++++++++-=yearsS2.4039,1$173$4=+=0)1(...)1()1(22110=+++++++=NNIRRCFIRRCFIRRCFCFNPV
IRR = 16.80%Using Excel, MIRR = 15.51%PeriodCash flowCumulative0-$18,000-$18,0001$5,600-$12,4002$5,600-$6,8003$5,600-$1,2004$5,600$4,4005$5,600$10,000PaybackPeriodCash FlowDiscounted CashFlowCumulativeDiscounted CF0-$18,000-$18,000-$18,0001$5,600$4,912-$13,0882$5,600$4,309-$8,7793$5,600$3,780-$4,9994$5,600$3,316-$1,6835$5,600$2,908$1,225Discounted paybackb. Assuming the project are independent, I would recommend 2projects.c.If the projects are mutually exclusive, I would recommend project Bbecause NPVA<NPVB.d.The projects have the same cash flow timing pattern. There is aconflict between NPV and IRR because NPV = IRR = 0.11.8/ CAPITAL BUDGETING CRITERIA: ETHICAL CONSIDERATIONS A miningcompany is considering a new project. Because the mine has received a permit, the0)1(600,5$)1(600,5$)1(600,5$)1(600,5$)1(600,5$000,18$54321=++++++++++-=IRRIRRIRRIRRIRRNPVyearsS21.3600,5$200,1$3=+=yearsS58.4908,2$683,1$4=+=
project would be legal; but it would cause significant harm to a nearby river. The firmcould spend an additional $10 million at Year 0 to mitigate the environmental problem,but it would not be required to do so. Developing the mine (without mitigation) wouldcost $60 million, and the expected net cash inflows would be $20 million per year for 5years. If the firm does invest in mitigation, the annual inflows would be $21 million. Therisk-adjusted WACC is 12%.a. Calculate the NPV and IRR with and without mitigation.

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Term
Spring
Professor
Nguyen
Tags
Net Present Value, Internal rate of return, CF0

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