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Capital budgeting criteria: ethical considerations An electric utility is considering a new power plant in northern Arizona. Power from the plant would be sold in the Phoenix area, where it is badly needed. Because the firm has received a permit, the plant would be legal; but it would cause some air pollution. The company could spend an additional $40 million at Year 0 to mitigate the environmental problem, but it would not be required to do so. The plant without mitigation would cost $210.64 million, and the expected cash inflows would be $70 million per year for 5 years. If the firm does invest in mitigation, the annual inflows would be $75.27 million. Unemployment in the area where the plant would be built is high, and the plant would provide about 350 good jobs. The risk adjusted WACC is 19%. Calculate the NPV and IRR with mitigation. Round your answers to two decimal places. Enter your answer for NPV in millions. Do not round your intermediate calculations. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be indicated by a minus sign. NPV $ million IRR % Calculate the NPV and IRR without mitigation. Round your answers to two decimal places. Enter your answer for NPV in millions. Do not round your intermediate calculations. For example, an answer of $10,550,000 should be entered as 10.55. NPV $ million IRR %
Liu Industrial Machines issued 152,000 zero coupon bonds five years ago. The bonds originally had 30 years to maturity with a yield to maturity of 7.2 percent. Interest rates have recently increased, and the bonds now have a yield to maturity of 8.3 ..
Dudley Savings Bank wishes to take a position in Treasury bond futures contracs, which currently have a quote of 113-100. Dudly Savings thinks interest rates will go down over the period of the investment. The face value of the bond underlyting the f..
Compute the total cash dividends paid to each class of stock in 2014 through 2017.
Stocks A and B haver the following data. Assuming the stock market is efficient and the stocks are in equilibrium,
Daily Enterprises is contemplating the acquisition of some new equipment. The purchase price is $31,000. The equipment has a 4-year life. The company expects to sell the equipment at the end of year 4 for $7,000. What is the incremental annual cash f..
A common fallacy in stock market investing is assuming that a good company makes a good investment. Suppose we define a “good company” as one that has experienced rapid growth in the recent past. Explain the reasons why shares of “good companies” may..
Bob’s personal wealth including investments in land, stocks, and bonds is about $14,000,000. He reported an interest income of $20,000 and dividend income of $6,000 last year. The $14,000,000 includes land worth $9,000,000 that Bob bought in 1966 for..
If their yields to maturity next year are still 8.0%, what is the rate of return on each bond?
KNF stock is quite cyclical. In a boom economy, the stock is expected to return 30% in comparison to 12% in a normal economy and -17% in a recessionary period. The probability of a recession is 25%. There is a 15% chance of a boom economy. What is th..
You have decided to retire and want to sell your shares in a closely held, all equity firm. The other shareholders have agreed to have the firm borrow $954,200 to purchase your 6,500 shares of stock at the current market value. The total number of sh..
Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt. If Vandell has $10.32 million in debt, what is the current value of Vandell's stock?...
Consider two bonds, Bond C and Bond D, both with a yield to maturity of 9 percent and with 5 years to maturity. What is the price of each bond?
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