Mat 540 Quiz 4
Cost overrun 10 or 15 % Project A) 10,000,000 cost of opening mine including overrun of 10% so 9,000,000 open mine and over run 100000
Project B) 8300000 -(8300000*10%)= 7470000 1. Is this project financially feasible given the base scenario? Why or why not. Be sure to include a discussion of NPV and IRR. How does the lifetime income compare to the initial investment? 5 points
2. What are at least three risk factors that Heru should be considering in evaluating the project? What types of risk do they represent? 5 points
3. Is there one scenario or input that has more impact on the forecast than others? 5 points
4. Which scenario is a better financial decision for the company based on the information in the case; pay a higher opening cost and lower operating expenses, or a lower opening cost, and higher operating expense. 5 points …show more content…
Looking at the base scenario, at what discount rate is the project feasible? What information did you use to determine that it would be feasible? 5 points
6. Using the spreadsheet, change the inputs to reflect the best and worst case scenario using the information in the text. Resubmit the excel sheet showing the side by side comparison. Include a brief explanation of how you changed the inputs. 15 points Answer
1. According to my results project B seems feasible than project A. Project A has a negative NPV and the IRR is lower than the rate of return. On the other hand, project B has a positive NPV and the IRR is greater than the expected rate of returned. It is interesting to see that the project A life income was greater than project B compared to the initial investment. 2. The three risk factors Heru should consider while evaluating the project are:
*Amount of cash invested and loan to open the mine (See "amount of money invested"
Project B) 8300000 -(8300000*10%)= 7470000 1. Is this project financially feasible given the base scenario? Why or why not. Be sure to include a discussion of NPV and IRR. How does the lifetime income compare to the initial investment? 5 points
2. What are at least three risk factors that Heru should be considering in evaluating the project? What types of risk do they represent? 5 points
3. Is there one scenario or input that has more impact on the forecast than others? 5 points
4. Which scenario is a better financial decision for the company based on the information in the case; pay a higher opening cost and lower operating expenses, or a lower opening cost, and higher operating expense. 5 points …show more content…
Looking at the base scenario, at what discount rate is the project feasible? What information did you use to determine that it would be feasible? 5 points
6. Using the spreadsheet, change the inputs to reflect the best and worst case scenario using the information in the text. Resubmit the excel sheet showing the side by side comparison. Include a brief explanation of how you changed the inputs. 15 points Answer
1. According to my results project B seems feasible than project A. Project A has a negative NPV and the IRR is lower than the rate of return. On the other hand, project B has a positive NPV and the IRR is greater than the expected rate of returned. It is interesting to see that the project A life income was greater than project B compared to the initial investment. 2. The three risk factors Heru should consider while evaluating the project are:
*Amount of cash invested and loan to open the mine (See "amount of money invested"