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 $15 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 $20 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 9% 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. $72.44m b. $76.67m c. $89.16m d. $71.94m e. $84.32m
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 $15 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 $20 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 9% 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. $72.44m b. $76.67m c. $89.16m d. $71.94m e. $84.32m
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: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 $15 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 $20 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 9% 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. $72.44m
b. $76.67m
c. $89.16m
d. $71.94m
e. $84.32m
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