Company A wishes to purchase a small operating mine, which has a remaining production life of 5 years, from Company B. Company B’s selling price for the mine is $10,000,000. Company A also plans to invest $2,500,000 in upgrading the mine and its infrastructure in the first year, and no production will occur during the first year. Based on recent history and future projections, the mine is expected to generate an annual, before-tax profit of $5,500,000 for its remaining life, after the upgrades and starting in year 2. At the end of mine’s production life, it is expected to cost $4,000,000 to close the mine, which will be incurred at the end of the Th year. The salvage value of the mine’s equipment is expected to be $1,500,000, which will also occur at the end of the 7th year. Company A requires a minimum rate of return of 15%.
a. Determine if the purchase of this mine is a good investment using NPV. (20 pts) b. What is the PVR (10 pts) c. Draw a Cumulative NPV diagram for the project (30 pts) d. What is the Discounted Payback? (10 pts)
Sample solution
Dante Alighieri played a critical role in the literature world through his poem Divine Comedy that was written in the 14th century. The poem contains Inferno, Purgatorio, and Paradiso. The Inferno is a description of the nine circles of torment that are found on the earth. It depicts the realms of the people that have gone against the spiritual values and who, instead, have chosen bestial appetite, violence, or fraud and malice. The nine circles of hell are limbo, lust, gluttony, greed and wrath. Others are heresy, violence, fraud, and treachery. The purpose of this paper is to examine the Dante’s Inferno in the perspective of its portrayal of God’s image and the justification of hell.
In this epic poem, God is portrayed as a super being guilty of multiple weaknesses including being egotistic, unjust, and hypocritical. Dante, in this poem, depicts God as being more human than divine by challenging God’s omnipotence. Additionally, the manner in which Dante describes Hell is in full contradiction to the morals of God as written in the Bible. When god arranges Hell to flatter Himself, He commits egotism, a sin that is common among human beings (Cheney, 2016). The weakness is depicted in Limbo and on the Gate of Hell where, for instance, God sends those who do not worship Him to Hell. This implies that failure to worship Him is a sin.
God is also depicted as lacking justice in His actions thus removing the godly image. The injustice is portrayed by the manner in which the sodomites and opportunists are treated. The opportunists are subjected to banner chasing in their lives after death followed by being stung by insects and maggots. They are known to having done neither good nor bad during their lifetimes and, therefore, justice could have demanded that they be granted a neutral punishment having lived a neutral life. The sodomites are also punished unfairly by God when Brunetto Lattini is condemned to hell despite being a good leader (Babor, T. F., McGovern, T., & Robaina, K. (2017). While he commited sodomy, God chooses to ignore all the other good deeds that Brunetto did.
Finally, God is also portrayed as being hypocritical in His actions, a sin that further diminishes His godliness and makes Him more human. A case in point is when God condemns the sin of egotism and goes ahead to commit it repeatedly. Proverbs 29:23 states that “arrogance will bring your downfall, but if you are humble, you will be respected.” When Slattery condemns Dante’s human state as being weak, doubtful, and limited, he is proving God’s hypocrisy because He is also human (Verdicchio, 2015). The actions of God in Hell as portrayed by Dante are inconsistent with the Biblical literature. Both Dante and God are prone to making mistakes, something common among human beings thus making God more human.
To wrap it up, Dante portrays God is more human since He commits the same sins that humans commit: egotism, hypocrisy, and injustice. Hell is justified as being a destination for victims of the mistakes committed by God. The Hell is presented as being a totally different place as compared to what is written about it in the Bible. As a result, reading through the text gives an image of God who is prone to the very mistakes common to humans thus ripping Him off His lofty status of divine and, instead, making Him a mere human. Whether or not Dante did it intentionally is subject to debate but one thing is clear in the poem: the misconstrued notion of God is revealed to future generations.
References
Babor, T. F., McGovern, T., & Robaina, K. (2017). Dante’s inferno: Seven deadly sins in scientific publishing and how to avoid them. Addiction Science: A Guide for the Perplexed, 267.
Cheney, L. D. G. (2016). Illustrations for Dante’s Inferno: A Comparative Study of Sandro Botticelli, Giovanni Stradano, and Federico Zuccaro. Cultural and Religious Studies, 4(8), 487.
Verdicchio, M. (2015). Irony and Desire in Dante’s” Inferno” 27. Italica, 285-297.
Sample Answer
Sample Answer
a. To determine if the purchase of the mine is a good investment using NPV, we need to calculate the net present value of the project.
First, let’s calculate the cash flows for each year:
Year 1: -$2,500,000 (initial investment) Year 2-6: $5,500,000 (annual profit) Year 7: $5,500,000 (annual profit) + $1,500,000 (salvage value) – $4,000,000 (closing cost)
Next, we need to discount these cash flows to their present value using the minimum rate of return of 15%.
Year 1: -$2,500,000 / (1 + 0.15)^1 = -$2,173,913.04 Year 2-6: $5,500,000 / (1 + 0.15)^2 = $3,804,347.83 Year 7: ($5,500,000 + $1,500,000 – $4,000,000) / (1 + 0.15)^7 = $2,225,272.73
Now we can calculate the net present value (NPV) by summing up the present values of the cash flows:
NPV = -$2,173,913.04 + $3,804,347.83 + $3,804,347.83 + $3,804,347.83 + $3,804,347.83 + $3,804,347.83 + $2,225,272.73 = $21,692,153.94
Since the NPV is positive ($21,692,153.94), the purchase of this mine is a good investment as it generates a positive return.
b. The Profitability Index (PVR) is calculated by dividing the present value of the future cash flows by the initial investment.
PVR = Present Value of Future Cash Flows / Initial Investment = ($3,804,347.83 * 5 + $2,225,272.73) / $2,500,000 = $21,692,153.94 / $2,500,000 = 8.68
The PVR for this investment is 8.68.
c. To draw a Cumulative NPV diagram for the project, we plot the cumulative NPV for each year.
Year 1: -$,173913.04 Year 2: -$2,173,913.04 + $3,804,347.83 = $1,630,434.78 Year 3: $1,630,434.78 + $3,804,347.83 = $5,434782.61 Year 4: $5,434782.61 + $3,804347.83 = $9,239130.44 Year 5: $9,239130.44 + $3,804347.83 = $13,043478.27 Year 6: $13,043478.27 + $3,804347.83 = $16,847826.10 Year 7: $16,847826.10 + $2,225272.73 = $19,073098.83
We can now plot these values on a graph with years on the x-axis and cumulative NPV on the y-axis.
d. The Discounted Payback is the time it takes for the cumulative discounted cash flows to equal or exceed the initial investment.
Cumulative NPV in Year 1: -$2,173913.04 Cumulative NPV in Year 2: -$2,173913.04 + $3,804347.83 = $1,630434.78 Cumulative NPV in Year 3: $1,630434.78 + $3,804347.83 = $5,434782.61 Cumulative NPV in Year 4: $5,434782.61 + $3,804347.83 = $9,239130.44 Cumulative NPV in Year 5: $9,239130.44 + $3,804347.83 = $13,043478.27 Cumulative NPV in Year 6: $13,043478.27 + $3,804347.83 = $16,847826.10 Cumulative NPV in Year 7: $16,847826.10 + $2,225272.73 = $19,073098.83
The discounted payback occurs in Year 4 since the cumulative NPV reaches and exceeds the initial investment of -$2,500000 before Year 5.
