Present Value & The Cash Flows - Corporate Finance Assignment Help

Assignment Task -

You own a gas pipeline that requires no maintenance and will produce $2 million of revenue next year. Unfortunately, after the first year the volume of gas (and thus the revenue) is expected to decline by 4.0% per year.

a. If the discount rate is 11.0% and the pipeline lasts forever, what is it worth today?

b. If the pipeline is to be abandoned at the end of 20 years, what is it worth today?

You own a gas pipeline that requires no maintenance and will produce $2 million of revenue next year. Unfortunately, after the first year the volume of gas (and thus the revenue) is expected to decline by 4.0% per year.

a. If the discount rate is 11.0% and the pipeline lasts forever, what is it worth today?

b. If the pipeline is to be abandoned at the end of 20 years, what is it worth today?

A widget factory costs $800,000 and will produce net cash flow starting next year of $150,000 per year for 10 years after which it will turn to dust. If the discount rate is 12%, what is the NPV? What is the IRR?

AMAX Corporation is a mining company that focuses on extraction of molybdenum—a crucial additive in the production of steel. AMAX is considering expanding its molybdenum capacity and is deciding whether to pursue one of the following investment alternatives

a) An investment to expand capacity at its Climax mine would cost $100M today (year 0), $25M next year (year 1), $25M the following year (year 2) and would increase capacity in years 3 to 9 by 15M pounds1. The variable cost of extracting molybdenum at this location would be $4/pound. 

b) An investment to expand capacity at its Henderson mine would cost $75M today (year 0), $15M next year (year 1), $15M the following year (year 2) and would increase capacity by 13M pound per year from years 3 to 9. The variable costs of extracting molybdenum from this location would be $4.5/pound.

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