a. Given the cash flows below, calculate and decide based whether RRWR should accept or reject the Northern B.C. project using each of the following models (ensure all math or keying sequences are shown - round to the nearest dollar and round percentages to two decimals):

1. NPV
2. IRR
3. PI
4. Payback Period
5. Discounted Payback Period

Additional Information

Use this information to calculate the discount rate, i.e., the weighted average cost of capital (WACC). The firm's capital financing is derived entirely from bond issues and common shareholder's equity (no preferred shares are outstanding). The outstanding $200 million (par value) bond issue is currently priced at 97%. The yield to maturity on RRWR bonds is presently 8% and the corporate tax rate is 40%. The firm also has 32,000,000 common shares outstanding which are trading at $25.00 per share. RRWR shares have a beta estimated at 1.25. Consider the Government of Canada Treasury Bills are currently yielding 3% whereas the expected return for the equity market in the mining industry is 10%.

All projects accepted by this firm should be paid back within a five-year time-period according to those that subscribe to the payback model. They argue that risk becomes excessive when forecasting the price of an ounce of gold any further out and further believe the requirement should remain at five years even if cash flows are discounted in the analysis.

Year Cash Flow $ Description

0 (40,000,000) Equipment purchase (capital expenditures)

1 10,000,000 Cash inflow from all sources of this project

2 10,000,000 Cash inflow from all sources of this project

3 10,000,000 Cash inflow from all sources of this project

4 10,000,000 Cash inflow from all sources of this project

5 10,000,000 Cash inflow from all sources of this project

6 10,000,000 Cash inflow from all sources of this project

7 10,000,000 Cash inflow from all sources of this project

b. Present your argument to the Board of Directors of RRWR, Inc. as to whether the project should be accepted or rejected in one succinct paragraph.