Question

The ulmer uranium company is deciding whether or not to open a strip mine whose net cost is $4.4 million. net cash inflows are expected to be $27.7 million, all coming at the end of year 1. the land must be returned to its natural state at a cost of $25 million, payable at the end of year 2. a. plot the project’s npv profile.

Answer 1

To plot the project's NPV profile, calculate the NPV at different discount rates using the net cost, cash inflows, and land restoration cost. Plot the discount rates on the x-axis and the corresponding NPV values on the y-axis.

Step-by-step explanation:

The net present value (NPV) profile allows us to visualize the relationship between the discount rate and the NPV of a project. To plot the project's NPV profile, we need to calculate the NPV at different discount rates. In this case, the initial investment (net cost) is -$4.4 million, and the expected cash inflows at the end of year 1 are $27.7 million. The cost of returning the land to its natural state is -$25 million, payable at the end of year 2.Using these values, we can calculate the NPV at different discount rates. The discount rate is the rate of return that the company expects for the project. By plotting the different discount rates on the x-axis and the corresponding NPV values on the y-axis, we can create the NPV profile.