Deep Mines Ltd. of Saskatche the company has mineral righ would be associated with ope Cost of new equipment and ti Working capital required Net annual cash receipts Cost to construct new roads Salvage value of equipment Receipts from sales of ore, le t is estimated that the minera released for reinvestment else Click here to view Exhibit 10-1 Required: M-a. Determine the NPV of the factor(s) to 3 decimal places
Deep Mines Ltd. of Saskatche the company has mineral righ would be associated with ope Cost of new equipment and ti Working capital required Net annual cash receipts Cost to construct new roads Salvage value of equipment Receipts from sales of ore, le t is estimated that the minera released for reinvestment else Click here to view Exhibit 10-1 Required: M-a. Determine the NPV of the factor(s) to 3 decimal places
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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Transcribed Image Text:Deep Mines Ltd. of Saskatchewan is contemplating the purchase of equipment to exploit a mineral deposit located 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
Working capital required
Net annual cash receipts
Cost to construct new roads in three years
Salvage value of equipment in four years
$280,000
95,000
130,000*
50,000
50,000
*Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance and so forth.
It is estimated that 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 discount rate is 20%.
Click here to view Exhibit 10-1 and Exhibit 10-2. to determine the appropriate discount factor(s) using tables.
Required:
1-a. Determine the NPV of the proposed mining project. (Negative amount should be indicated with a minus sign. Round discount
factor(s) to 3 decimal places. Round other intermediate calculations and final answer to the nearest whole number.)
Net present value
$
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