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1)
Payback Period
Year Beginning Unrecovered Investment Cash Inflow
0 $500,000,000 0
1 $500,000,000 $60,000,000
2 $440,000,000 $90,000,000
3 $350,000,000 $170,000,000
4 $180,000,000 $230,000,000
Since only $180,000,000 need to be recovered in year 4 while the cash flow is
$205,000,000, then the amount would be recovered in a fraction of year 4. To calculate
this fraction: $180,000,000 / $205,000,000 = 0.88.
2)
Yes, the company should open the mine since it has a positive NPV
3)
Ending Unrecovered Investment
$500,000,000
$440,000,000
$350,000,000
$180,000,000
($50,000,000)