maining Time: 1 hour, 09 minutes, 18 seconds.estion Completion Status:QUESTION 7In 1992, the Enron Development Corporation, a subsidiary of the Houston-based energy company, signed a contract tobuild the largest-ever power plant in India, requiring a total investment of $2.8 billion. After Enron had spent nearly $300million, the project was canceled by Hindu nationalist politicians in the Maharashtra state where the plant was to be built.Which of the following is(are) true?O Upon the news release of the project cancellation, Enron's share price fell immediately by about 10 percent.O In the process of structuring the deal, Enron made a profound political miscalculation: Instead of waiting for the nextelection results, Enron rushed to close the deal and began construction, apparently believing that a new government wouldfind it difficult to unwind the deal when construction was already under way.O Enron had the last laugh, however when they went bankrupt and left the power plant unfinished.O all of the optionsQUESTION 8Suppose you observe the following one-year interest rates, spot exchange rates and futures prices. Futures contracts areavailable on €10,000. How much risk-free arbitrage profit could you make on one contract at maturity from this mispricing?SofSif)Exchange Rate$145 61.00EtInterest RateClick Save and Submit to save and submit. Click Save All Answers to save all answers.16redAPRhp4%hum ikSave All A24°C

The Correct Answer is (d) All of the Options.

Answered: In 1992, the Enron Development…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Build Limited plans to start a project (Project X) for the forthcoming year that will be sold to an international corporation. Build Limited is yet to pay for the research costs to date, which total Rs. 150,000. The following additional costs have been estimated by the managing director to complete project X. MachineryProject X will require a specialised machinery which cost Rs. 18,000 three years ago. It has a current disposal value of Rs. 8,000 and if used in project X, it is estimated that the disposal value in one year’s time will be Rs. 6,000. LabourProject X will require skilled labour which is hard to recruit in the present situation. Workers will have to be transferred from another project (project O) which is currently in operation. Project O is expected to generate sales of Rs. 150,000 in the next year. The prime cost of these sales is expected to be Rs. 100,000, including Rs. 40,000 for the labour cost itself. The overhead absorbed into this production (project O) is…
8. A nuclear power company is deciding whether tobuild a nuclear power plant at Diablo Canyon or atRoy Rogers City. The cost of building the powerplant is $70 million at Diablo and $95 million atRoy Rogers City. If the company builds at Diablo,however, and an earthquake occurs at Diablo duringthe next five years, construction will be terminatedand the company will lose $40 million (and will stillhave to build a power plant at Roy Rogers City).Without further expert information the companybelieves there is a 10% chance that an earthquakewill occur, at Diablo during the next five years. For$1.5 million, a geologist can be hired to analyze thefault structure at Diablo Canyon. She will predicteither that an earthquake will occur or that an earthquake will not occur. The geologist’s past recordindicates that she will predict an earthquake withprobability 0.90 if an earthquake will occur, andshe will predict no earthquake with probability 0.80if an earthquake will not occur. Should the…
6. 6:05 TB MC Qu. 14-55 (Algo) The management of Penfold Corporation... The management of Penfold Corporation is considering the purchase of a machine that would cost $310,000, would last for 6 years, and would have no salvage value. The machine would reduce labor and other costs by $60,000 per year. The company requires a minimum pretax return of 12% on all investment projects. © Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. The net present value of the proposed project is closest to (Ignore income taxes.): (Round your intermediate calculations and final answer to the nearest whole dollar amount.) Multiple Choice О $(63,340) $(8.349) B O $(91,225) MacBook Pro G Search or type URL
3. Power Coal Mine Bhd is considering a new mining pit to increase its productionoutput. The company will have to pay $25 million for the rights to mine on thegovernment land. The infrastructure development costs will amount to another $12million. It is anticipated that the mine should generate annual net revenue of $10million for 15 years. When the mine is closed at the end of the fifteenth year, $10million will be spent for reclamation work. The company’s MARR is 10%per year.a.Draw a cash flow diagram for the above proposal.b. Compute the equivalent present worth (PW) of the proposal.c. Determine the minimum annual net revenue required for the proposal tobreakeven. Assume that costs of rights to mine, development, andreclamation remain the same.
1. Two remediation options are being considered for a contaminated land area formerly used for industrial operations. Option 1 involves removing all of the contaminated soil over a two-year period at a cost of 2.2 million per year. Option 2 is to leave the soil in place but treat it with a bioremediation agent at a cost of 960,000/year over a three- year period. Subsequently, the soil would be sampled each for the next five years to ensure the effectiveness of the treatment system. The cost of the sampling program would be 250,000 the first year and 100,000/year for the remaining years. a) Which option has the lowest overall cost at discount rate of 6 percent/year? What is the difference in the total cost between the two options based on NPV? Give your answer both in dollars and as a percentage difference.
Windhoek Mines, Limited, of Namibia, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company has mineral rights. An engineering and cost analysis has been made, and it is expected that the following cash flows would be associated with opening and operating a mine in the area: Cost of new equipment and timbers Working capital required $430,000 $ 215,000 $ 150,000* Annual net cash receipts Cost to construct new roads in three years $ 63,000 Salvage value of equipment in four years $ 88,000 *Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, and so forth. The mineral deposit would be exhausted after four years of mining. At that point, the working capital would be released for reinvestment elsewhere. The company's required rate of return is 18%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: a. What is the net present value of the…
Question #3: Read the case carefully and answer the questions that follow The government of Oman has decided to construct a water Dam in Hay- A-Turath, Nizwa. The construction of the dam can be finished in 2 years and the expected life of the dam is estimated to be 5 years after its completion. The following is the cost and revenue schedule of the project Year Cost: Construction cost Annual maintenance cost Relocation cost Destruction of crops Revenue: Addition harvest Ticket revenue from park 1 2 3 4 5 6 7 10,000 20,000 2,000 3,000 Requirements: (a) Calculate the 1,000 1,000 1,000 1,000 1,000 10,000 10,000 10,000 10,000 10,000 500 500 500 500 500 net cash flow of the project. (b) If the social discounting rate is 6%, calculate the net present value (NPV) (c) Based on NPV calculation, will you accept the project?
Windhoek Mines, Limited, of Namibia, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company has mineral rights. An engineering and cost analysis has been made, and it is expected that the following cash flows would be associated with opening and operating a mine in the area: Cost of new equipment and timbers $ 370,000 Working capital required $ 115,000 Annual net cash receipts $ 130,000* Cost to construct new roads in three years $ 43,000 Salvage value of equipment in four years $ 68,000 *Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, and so forth. The mineral deposit would be exhausted after four years of mining. At that point, the working capital would be released for reinvestment elsewhere. The company’s required rate of return is 18%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. Required: a. What is the…
Airodyne Wind, Inc., has wind tunnels that can operate vertically or horizontally for evaluating the effects of air flow on a component's PCB response and reliability. The company expects to build a new tunnel that will be outfitted with multiple sensor ports. For the estimates below, calculate the equivalent annual cost of the project. First Cost Replacement Cost, Year 2 AOC per Year Salvage Value Life, Years Interest Rate The equivalent annual cost of the project is $ $-570,000 $-300,000 $-870,000 $270,000 7 13%
2. Two remediation options are being considered for a contaminated land area formerly used for industrial operations. Option 1 involves removing all of the contaminated soil over a two-year period at a cost of 2.2 million per year. Option 2 is to leave the soil in place but treat it with a bioremediation agent at a cost of 960,000/year over a three-year period. Subsequently, the soil would be sampled each for the next five years to ensure the effectiveness of the treatment system. The cost of the sampling program would be 250,000 the first year and 100,000/year for the remaining years. a) Draw a cash flow diagram for each of the two options. b) Calculate the net present value of each option based on discount rate of 6 percent/year. c) Which option has the lowest overall cost? What is the difference in the total cost between the two options based on NPV? Give your answer both in dollars and as a percentage difference.
Build Limited plans to start a project (Project Beta) for the forthcoming yearthat will be sold to an international corporation. Build Limited is yet to pay for the research costs to date, which total Rs. 150,000. The following additional costs have been estimated by the managing director to complete project Beta. MaterialsTwo materials are needed for project Beta – Material A and Material B. Material A has already been purchased at a cost of Rs. 60,000. It is toxic; and if not used in project Beta, it must be disposed of at a cost of Rs. 5,000. Material B – there are 50 kgs available in inventory which has been purchased at Rs. 400 per kg. project Beta will require a total of 150 kgs of this material. The current purchase price if Rs. 450 per kg and this material is regularly used in other projects currently undertaken by Build Limited. LabourProject Beta will require skilled labour which is hard to recruit in the present situation. Workers will have to be transferred from another…
A mining company in South Africa has discovered a new gold vein in a mountain 150 kilometers north of Johannesburg. SA Mining Corporation will have to decide if they should set up a mine in the newly discovered location. They will be using the most cost-effective, but environmentally damaging method of gold mining sulfuric acid extraction. To go ahead SA Mining Corporation must spend $900,000 on new mining equipment and pay $165,000 for its installation. The goldmine will make an annual profit contribution of $350,000 each year for the next five years of the extraction. SA’s cost of capital is 14% and assumes that cash flows occur at the end of each year. What is the NPV, and IRR of the project? [Note: you are supposed to show every step of your calculation and interpret the result.] Critically discuss how environmental effects should be considered when evaluating these types of projects (impact investing), include in your discussion the challenges in quantifying these issues in…

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