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After some encouraging first signs, a mining company is evaluation setting up a gold mine in Western Australia. The mine will take 4 years to prepare and excavate, costing 4 payments of $40 million at the start of each year for the next four years, that is, at t=0, 1, 2 and 3. Once mining starts, the mine is expected to yield a constant $30 million for the next 12 years. The first payment is at t=4 and the last at t=15 The required return of the mine is 13% pa given as an effective annual nominal rate. All cash flows are real and the expected inflation rate is 2% pa given as an effective annual rate. Ignore taxes. The Net Present Value is: O a. $10.20m O b. $35.67m O c. $6.62m O d. 8.51m O e. $20.05m

After some encouraging first signs, a mining company is evaluation setting up a gold mine in Western Australia. The mine will take 4 years to prepare and excavate, costing 4 payments of $40 million at the start of each year for the next four years, that is, at t=0, 1, 2 and 3. Once mining starts, the mine is expected to yield a constant $30 million for the next 12 years. The first payment is at t=4 and the last at t=15 The required return of the mine is 13% pa given as an effective annual nominal rate. All cash flows are real and the expected inflation rate is 2% pa given as an effective annual rate. Ignore taxes. The Net Present Value is: O a. $10.20m O b. $35.67m O c. $6.62m O d. 8.51m O e. $20.05m

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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After some encouraging first signs, a mining company is evaluation setting up a gold mine in Western Australia. The mine will take 4 years to prepare and excavate, costing 4 payments of $40 million at the start of each year for the next four years, that is, at t=0, 1, 2 and 3. Once mining starts, the mine is expected to yield a constant $30 million for the next 12 years. The first payment is at t=4 and the last at t=15 The required return of the mine is 13% pa given as an effective annual nominal rate. All cash flows are real and the expected inflation rate is 2% pa given as an effective annual rate. Ignore taxes. The Net Present Value is: a. $10.20m O b. $35.67m O c. $6.62m O d. 8.51m O e. $20.05m
Transcribed Image Text:After some encouraging first signs, a mining company is evaluation setting up a gold mine in Western Australia. The mine will take 4 years to prepare and excavate, costing 4 payments of $40 million at the start of each year for the next four years, that is, at t=0, 1, 2 and 3. Once mining starts, the mine is expected to yield a constant $30 million for the next 12 years. The first payment is at t=4 and the last at t=15 The required return of the mine is 13% pa given as an effective annual nominal rate. All cash flows are real and the expected inflation rate is 2% pa given as an effective annual rate. Ignore taxes. The Net Present Value is: a. $10.20m O b. $35.67m O c. $6.62m O d. 8.51m O e. $20.05m
The warmer months are coming, and you are considering buying an air- conditioning unit for your home.The Supersonic II has a price of $3,000 and will last for 7 years with annual maintenance costs of $80. A cheaper model is the Rustbucket V1 which only costs $1,900 but has an expected life of 5 years. It will require more repairs and maintenance at $175 per year. Your cost of capital is 8%pa, given as an effective annual rate. Assume all cash flows occur at the end of the year. Calculate the equivalent annual cost for each of the units. The answers are given in the stated order: Supersonic II; Rustbucket V1 O a. $3,666.51; $2,848.72 O b. $656.22; $650.87 O c. $3,416.51; $2,598.72 O d. $488.07; $519.74 e. $543.26; $421.86
Transcribed Image Text:The warmer months are coming, and you are considering buying an air- conditioning unit for your home.The Supersonic II has a price of $3,000 and will last for 7 years with annual maintenance costs of $80. A cheaper model is the Rustbucket V1 which only costs $1,900 but has an expected life of 5 years. It will require more repairs and maintenance at $175 per year. Your cost of capital is 8%pa, given as an effective annual rate. Assume all cash flows occur at the end of the year. Calculate the equivalent annual cost for each of the units. The answers are given in the stated order: Supersonic II; Rustbucket V1 O a. $3,666.51; $2,848.72 O b. $656.22; $650.87 O c. $3,416.51; $2,598.72 O d. $488.07; $519.74 e. $543.26; $421.86
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