Answer:
B) Precious Metals only
Explanation:
to determine which firm should accept the project, the net present value for each company should be determined. Only firms with a positive NPV should accept the project because a negative NPV indicates that the project would be unprofitable for the firm
Net present value is the present value of after tax cash flows from an investment less the amount invested.
NPV can be calculated using a financial calculator
Deep Mining
Cash flow in year 0 = $-950,000
Cash flow each year from year 1 to 12 = $165,000
I = 16.2 percent.
NPV = $-99,553.49
Precious Metals
Cash flow in year 0 = $-950,000
Cash flow each year from year 1 to 12 = $165,000
I = 13.4 percent.
NPV = $9,059.05
Only Precious Metals should accept the project because it has a positive NPV.
To find the NPV using a financial calculator:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
