3. Power Coal Mine Bhd is considering a new mining pit to increase its production output. The company will have to pay $25 million for the rights to mine on the government land. The infrastructure development costs will amount to another $12 million. It is anticipated that the mine should generate annual net revenue of $10 million for 15 years. When the mine is closed at the end of the fifteenth year, $10 million will be spent for reclamation work. The company’s MARR is 10%per year. a.Draw a cash flow diagram for the above proposal. b. Compute the equivalent present worth (PW) of the proposal. c. Determine the minimum annual net revenue required for the proposal to breakeven. Assume that costs of rights to mine, development, and reclamation remain the same.
3. Power Coal Mine Bhd is considering a new mining pit to increase its production
output. The company will have to pay $25 million for the rights to mine on the
government land. The infrastructure development costs will amount to another $12
million. It is anticipated that the mine should generate annual net revenue of $10
million for 15 years. When the mine is closed at the end of the fifteenth year, $10
million will be spent for reclamation work. The company’s MARR is 10%per year.
a.Draw a cash flow diagram for the above proposal.
b. Compute the equivalent present worth (PW) of the proposal.
c. Determine the minimum annual net revenue required for the proposal to
breakeven. Assume that costs of rights to mine, development, and
reclamation remain the same.
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