2. Tedder Mining has analyzed a proposed expansion project and determined that t

Question

2.

Tedder Mining has analyzed a proposed expansion project and determined that the internal rate of return is lower than the firm desires. Which one of the following changes to the project would be most expected to increase the project's internal rate of return?

Decreasing the amount of the final cash inflow.

3)

A project has cash flows of -$128,000, $52,800, $60,200, and $183,100 for years 0 to 3, respectively. The required payback period is two years. Based on the payback period of _____ for this project, you should _____ the project.

2.29; reject

5)

What is the net present value of a project with the following cash flows and a required return of 12 percent?

  

$10,052.55

-$10,052.55

$10,458.27

-$13,578.43

-$10,458.27

Tedder Mining has analyzed a proposed expansion project and determined that the internal rate of return is lower than the firm desires. Which one of the following changes to the project would be most expected to increase the project's internal rate of return?

Explanation / Answer

2)

Condensing the firm's cash inflows into fewer years without lowering the total amount of those inflows.

3) Payback Period

The payback period is 2 Years

2 years+ (15000/183100) = 0.081

the Payback period is 2.08, reject

4) Net Present Value = 18300/(1+0.12)^1+36530/(1+0.12)^2+4750/(1+0.12)^3-59300

= -$10458.27

Condensing the firm's cash inflows into fewer years without lowering the total amount of those inflows.

3) Payback Period

Year Cash Flow Cmulative Cash Flow 1 (128000) (128000) 2 52800 (75200) 3 60200 (15000) 4 183100

The payback period is 2 Years

2 years+ (15000/183100) = 0.081

the Payback period is 2.08, reject

4) Net Present Value = 18300/(1+0.12)^1+36530/(1+0.12)^2+4750/(1+0.12)^3-59300

= -$10458.27

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