Problem 10-6 A number of industrial products include gold and silver as a component since they...
Fantastic news! We've Found the answer you've been seeking!
Question:
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/05/66478ef9ced80_68966478ef9af242.jpg)
Transcribed Image Text:
Problem 10-6 A number of industrial products include gold and silver as a component since they have very good conductive properties. The S&M Smelting Company engages in the recovery of gold from such products and is considering a contract to begin extracting the gold from the recycling of personal computers. The project involves contracting with the state governments of three Midwestern states to dispose of their PCs. The project will last for five years, and the contract calls for the disposal of 200,000 PCs per year. Three tons of electronic scrap contains approximately one Troy ounce of gold. Moreover, each PC contains approximately 6 pounds of electronic scrap, and the processing cost involved in extracting the gold is $67.50 per ton of scrap. In addition, the current (spot) price of gold is $592.80 and the forward price curve for the price per ounce of gold spanning the next five years is as follows: 2008 $679.40/ounce 2009 $715.10/ounce 2010 $750.60/ounce 2011 $786.90/ounce 2012 822.8/ounce S&M estimates that the firm's cost of capital is 10.5%, and the risk-free rate of interest on five- year Treasury bonds is currently 5.0%. In addition, S&M faces 30% tax rate and the entire investment of $450,000 made in the project in 2007 will be depreciated using straight-line depreciation over five years with a zero salvage value. a) Estimate the after-tax (certainty-equivalent) project free cash flows for the project over its five-year productive life. b) Using the certainty-equivalent valuation methodology, estimate the NPV of the project. Problem 10-6 A number of industrial products include gold and silver as a component since they have very good conductive properties. The S&M Smelting Company engages in the recovery of gold from such products and is considering a contract to begin extracting the gold from the recycling of personal computers. The project involves contracting with the state governments of three Midwestern states to dispose of their PCs. The project will last for five years, and the contract calls for the disposal of 200,000 PCs per year. Three tons of electronic scrap contains approximately one Troy ounce of gold. Moreover, each PC contains approximately 6 pounds of electronic scrap, and the processing cost involved in extracting the gold is $67.50 per ton of scrap. In addition, the current (spot) price of gold is $592.80 and the forward price curve for the price per ounce of gold spanning the next five years is as follows: 2008 $679.40/ounce 2009 $715.10/ounce 2010 $750.60/ounce 2011 $786.90/ounce 2012 822.8/ounce S&M estimates that the firm's cost of capital is 10.5%, and the risk-free rate of interest on five- year Treasury bonds is currently 5.0%. In addition, S&M faces 30% tax rate and the entire investment of $450,000 made in the project in 2007 will be depreciated using straight-line depreciation over five years with a zero salvage value. a) Estimate the after-tax (certainty-equivalent) project free cash flows for the project over its five-year productive life. b) Using the certainty-equivalent valuation methodology, estimate the NPV of the project.
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
L-keys, such as the one shown in the figure below, are commonly used to insert screws and bolts in medical implants. This insertion process can be simplified into the loading scenario shown in the...
-
Identify the advantages and disadvantages of rules-based versus principles-based accounting standards.
-
During the first month of operations, Gagne Services, Inc., completed the following transactions: Jul... 2.... Gagne received $62,000 cash and issued common stock to the stockholders. 3........
-
Explain how the standard deviation is calculated when stratified mean-per- unit sampling is used. What information is needed before the calculation can be made?
-
John Williams (birthdate August 2, 1975) is a single taxpayer. Johns earnings and withholdings as the manager of a local casino for 2018 are reported on his Form W-2: Johns other income includes...
-
2) A joint pdf is described below. A new random variable is formed as shown: W = Y+X. Determine an expression for the CDF for W. Please solve all integrals y 4 -4 -4 1 fxy(x, y) = 128 0 4 x -4 < y <...
-
PLEASE READ THESE DIRECTIONS CAREFULLY!!!! This is the second part of the optics test and is worth 40 points. Please print off the prepared ray diagram sheets to use to draw the following four ray...
-
In Bylund's article, there is the quote "To a nation built on immigration it should seem strange to have a president investing in keeping foreigners out, and considering fines on employers hiring...
-
Utility function is a helpful tool to represent preferences so we can analyze resource allocation using mathematical notations and generate predictions about how the most preferred, affordable...
-
A firm has an opportunity to invest in a project to install new production equipment. It will cost them $1,500,000 upfront to purchase and install the equipment. The firms cost of capital is 7%. It...
-
Identify an industry that enjoys perfect (or nearly perfect) competition. How do the competitors interact with each other and suppliers and customers?
-
The article says that international supply-chain constraints have now eased. In terms of aggregate supply (AS), explain how these supply-chain constraints would have affected the macroeconomy during...
-
Copy a string in reverse order. Do not copy the contents of the array to another array. Do not use push or pop. Your loop needs only to process half the array. Here is a hint to divide a number by 2,...
-
The figure shows six containers, each of which is filled from the top. Assume that water is poured into the containers at a constant rate and each container is filled in 10 seconds. Assume also that...
![Mobile App Logo](https://dsd5zvtm8ll6.cloudfront.net/includes/images/mobile/finalLogo.png)
Study smarter with the SolutionInn App