McGraw-Hill OnlineMcGraw-Hill Higher EducationLearning Center
Student Centre | Instructor Centre | Information Centre | Home
S&P Market Insight
S&P Projects
Detailed Index
Appendix 20A
Finance Around the World
CBC Video Cases
Video Clips
Formula Sheet
Technical Support
Learning Objectives
Internet Application Questions
Web Links
Quick Quiz 1
Quick Quiz 2
Part IV CBC Video Case
Key Terms & Glossary
Electronic Lecture Notes
Feedback
Help Center


Fundamentals of Corporate Finance, 4/c/e
Fundamentals of Corporate Finance, 4/e
Stephen A. Ross, Massachusetts Institute of Technology
Randolph W. Westerfield, University of Southern California
Bradford D. Jordan, University of Kentucky
Gordon S. Roberts, York University
Making Capital Investment Decisions

Internet Application Questions



1

Every now and then governments at various levels provide tax incentives to promote capital investments in key industries. The Province of Ontario recently proposed new Mining Investment Incentives in the form of bonus tax credits (on top of normal deductions). Information on this program is found in the following release:
http://www.gov.on.ca/MNDM/pub/newrel/nr00/e254_00.htm
Explain how this incentive will affect new exploration activity. Is it possible that such tax incentives alter the NPV of a project?
 
2

Syncrude Canada Limited is a consortium of several oil companies. In August 2000, Syncrude announced the opening of Aurora, a new oil sands project, at a total capital cost of $8 billion spread over ten years. Aurora is expected to increase production from approximately 80 million barrels of oil to 170 million barrels per year. Assuming a 10-year horizon and a cost of capital of 10 percent, do you think Aurora is a positive NPV project? Oil price at the time was $30 per barrel, and cost of extraction was $10 per barrel. Ignore taxes. Information on the Aurora project is provided on Syncrude's homepage
 
3

In addition to NPV and IRR, Economic Value Added (EVA®) analysis has emerged as a popular tool for capital budgeting and valuation. EVA was developed and is patented by Stern Stewart & Co. Explain the mechanics of EVA and shows its equivalence to NPV. Provide at least two reasons why EVA and NPV may differ in implementation.
 




McGraw-Hill/Ryerson




Copyright2002 McGraw-Hill Higher Education
Any use is subject to the Terms of Use and Privacy Policy.
McGraw-Hill Higher Education is one of the many fine businesses of The McGraw-Hill Companies.