Alpha Coal, Limited, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company hasmineral rights. An engineering and cost analysis has been made, and it is expected that the following cash flows would be associatedwith opening and operating a mine in the area:Cost of new equipment and timbersWorking capital requiredAnnual net cash receiptsCost to construct new roads in three yearsSalvage value of equipment in four years$360,000$110,000$140,000-$ 42,000$ 67,000*Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, taxes, and so forth.The mineral deposit would be exhausted after four years of mining. At that point, the working capital would be released forreinvestment elsewhere. The company's required rate of return is 19%Required:a. What is the net present value of the proposed mining project?b. Should the project be accepted?

Alpha Coal Mine Project Analysisa. Net Present Value (NPV) Calculation:Year Cash Flow Discount…

Answered: Alpha Coal, Limited, is contemplating…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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schefter mining operates a copper mine in wyoming. Acquisitions, explorations, and development costs totaled $8.3 million. extraction activities began on July 1, 2024. After the copper is extracted approximately six years, schefter is obligated to restore the land to its original condition, including constructing a park. the company controller has 3 cash flow possibilities for restoration costs 1. $710000 at 25% probability 2. $810000 at 25% probability 3. $910,000 at 50% probability the companys credit -adjusted rate of interest is 6% and ends fiscal year dec 31st. required 1. what is the initial cost of the copper mine? 2. how much accreciation will schefter report in its 2024 income statement? 3. what is the book value of the asset retirement obligation that schefter will report in its 2024 balance sheet? 4. assume the actual restoration costs incurred in 2030 totaled $881,000. what amount of gain or loss will schefter recognize on retirement of the liability? cost of mine accretion…
HHH
Smithson Mining operates a silver mine in Nevada. Acquisition, exploration, and development costs totaled $6.0 million. After the silver is extracted in approximately five years, Smithson is obligated to restore the land to its original condition, including constructing a wildlife preserve. The company's controller has provided the following three cash flow possibilities for the restoration costs: (1) $540,000, 30% probability; (2) $590,000, 45% probability; and (3) $690,000, 25% probability. The company's credit-adjusted, risk-free rate of interest is 8%. What is the book value of the asset retirement liability at the end of one year? Assuming that the actual restoration costs incurred after five years are $636,000, what amount of gain or loss will Smithson recognize on retirement of the liability? Note: Use appropriate factor(s) from the tables provided. Do not round intermediate calculations. Enter your answers in dollars not in millions of dollars. (FV of $1, PV of $1, FVA of $1,…
Grey Mining Company has purchased a tract of mineral land for $1,200,000. It is estimated that this tract will yield 80,000 tons of ore with sufficient mineral content to make mining and processing profitable. It is further estimated that 4,000 tons of ore will be mined the first and last year and 8,000 tons every year in between. (Assume 11 years of mining operations.) The land will have a residual value of $80,000. The company builds necessary structures and sheds on the site at a cost of $134,000. It is estimated that these structures can serve 16 years but, because they must be dismantled if they are to be moved, they have no salvage value. The company does not intend to use the buildings elsewhere. Mining machinery installed at the mine was purchased at a cost of $150,000. Grey Mining estimates that about half of this machinery will still be useful when the present mineral resources have been exhausted but that dismantling and removal costs will just about offset its value at…
Windhoek Mines, Ltd., of Namibia, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company has mineral rights. An engineering and cost analysis has been made, and it is expected that the following cash flows would be associated with opening and operating a mine in the area: Cost of new equipment and timbers $ 310,000 Working capital required $ 190,000 Annual net cash receipts $ 125,000 * Cost to construct new roads in year three $ 58,000 Salvage value of equipment in four years $ 83,000 *Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, and so forth. The mineral deposit would be exhausted after four years of mining. At that point, the working capital would be released for reinvestment elsewhere. The company’s required rate of return is 18%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables.…
Bunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have an initial investment of $552,151. The net cash flows estimated for the two proposals are as follows: Net Cash Flow Year Processing Mill Electric Shovel 1 $176,000 $220,000 2 157,000 204,000 3 157,000 188,000 4 125,000 194,000 5 95,000 6 79,000 7 69,000 8 69,000 The estimated residual value of the processing mill at the end of Year 4 is $220,000. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Determine which equipment should…
Windhoek Mines, Limited, of Namibia, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company has mineral rights. An engineering and cost analysis has been made, and it is expected that the following cash flows would be associated with opening and operating a mine in the area: Cost of new equipment and timbers $ 400,000 Working capital required $ 130,000 Annual net cash receipts $ 145,000*Footnote asterisk Cost to construct new roads in three years $ 46,000 Salvage value of equipment in four years $ 71,000 *Footnote asteriskReceipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, and so forth. The mineral deposit would be exhausted after four years of mining. At that point, the working capital would be released for reinvestment elsewhere. The company's required rate of return is 18%. Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using tables. Required: What is…
Perit Industries has $210,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Project A Project B Cost of equipment required $ 210,000 $0 Working capital investment required $0 $ 210,000 Annual cash inflows $ 30,000 $ 52,000 Salvage value of equipment in six years $ 9, 100 $ 0 Life of the project 6 years 6 years The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discount rate is 15%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project A. (Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.) 2. Compute the net present value of Project B. (Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount.) 3. Which investment alternative (if either) would you…
Bunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have an initial investment of $665,159. The net cash flows estimated for the two proposals are as follows: Net Cash Flow Year Processing Mill Electric Shovel 1 $203,000 $254,000 2 181,000 235,000 3 181,000 217,000 4 144,000 223,000 5 110,000 6 91,000 7 79,000 8 79,000 The estimated residual value of the processing mill at the end of Year 4 is $250,000. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558…
Perit Industries has $155,000 to invest in one of the following two projects: Cost of equipment required Working capital investment required Annual cash inflows Salvage value of equipment in six years Life of the project Project A $ 155,000 $ 25,000 $ 8,600 6 1. Net present value project A 2. Net present value project B 3. Which investment alternative (if either) would you recommend that the company accept? X Answer is complete but not entirely correct. Project B $0 $ 155,000 $ 40,000 years The working capital needed for project B will be released at the end of six years for investment elsewhere. Perit Industries' discount rate is 14%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value of Project A. Note: Enter negative values with a minus sign. Round your final answer to the nearest whole dollar amount. 2. Compute the net present value of Project B. $(53,971) 70,527 X Project B $0…
Jackpot Mining Company operates a copper mine in central Montana. The company paid $1,000,000 in 2021 for the mining site and spent an additional $600,000 to prepare the mine for extraction of the copper. After the copper is extracted in approximately four years, the company is required to restore the land to its original condition, including repaving of roads and replacing a greenbelt. The company has provided the following three cash flow possibilities for the restoration costs (FV of $1. PV of $1. EVA of $1. PVA of $1. EVAD of $1 and PVAD of S1) (Use appropriate factor(s) from the tables provided.): 1 2 3 Cash Outflow $300,000 400,000 600,000 Probability 25% 40% 35% To aid extraction, Jackpot purchased some new equipment on July 1, 2021, for $120,000. After the copper is removed from this mine. the equipment will be sold for an estimated residual amount of $20,000. There will be no residual value for the copper mine. The credit-adjusted risk-free rate of interest is 10%. The company…

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