QUESTIONHaving been hired as a mineral economist, evaluate the profitability and viability of a mineralproject made up of a mobile processing plant designed to process 450,000 tonnes of copperreserves at an average grade of 2.75% Cu and 90% recovery.The following information on the reserve is established for use.Commodity selling price US$2,250/tonneMining/Processing de-escalates @ 2% per annum$50/tonneCorporate tax30%Mineral royalty4%Capital Expenditure$2,000,000Depreciation scrap value on SYD method$250,000Production rate3,750 tpmDiscount rate20%Commodity price increase by 5% per yearRequired:a) Compute the Net Operating Cash Flows (NOCF)b) Determine the project viability by using the NPV methodc) What monetary value is attached to the project at 30% discount rate?d) Explain with figures the acceptability of this project at 40% discount

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Answered: Having been hired as a mineral…

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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Highland Mining and Minerals Co. is considering the purchase of two gold mines. Only one investment will be made. The Australian gold mine will cost $1,627,000 and will produce $329,000 per year in years 5 through 15 and $518,000 per year in years 16 through 25. The U.S. gold mine will cost $2,042,000 and will produce $280,000 per year for the next 25 years. The cost of capital is 11 percent. Use Appendix D for an approximate answer but calculate your final answers using the formula and financial calculator methods. (Note: In looking up present value factors for this problem, you need to work with the concept of a deferred annuity for the Australian mine. The returns in years 5 through 15 actually represent 11 years; the returns in years 16 through 25 represent 10 years.) a-1. Calculate the net present value for each project. (Do not round intermediate calculations and round your answers to 2 decimal places.) The Australian mine The U.S. mine a-2. Which investment should be made?…
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Ten investors invested an amount of P 75 million each for coal mining at Sierra Madre Mountain. It is expected that the mine contains 5, 000, 000 tons of coal ores and due to latest technology, it can mine 125, 000 tons of unprocessed ores. The management expects an annual expenses of P 35 million, an annual miscellaneous expenses of P 12 million and milling, drilling and other procedural expenses yearly costs P 815 per ton of unprocessed ores of coal. After such process, 85% of the coal ores produces an income of P 1, 750 per ton. a) Find the annual depletion cost of the mine. b) Ten years after operation, the management annual expenses decreases an amount of P 4 million, annual miscellaneous expenses becomes P13 million and procedural expenses becomes P 920 per ton of unprocessed ores. After procedural process, 75% of unprocessed ores produces an income of P 1, 850 per ton. What would then be its average depletion cost annually for the remaining years of the mine?
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Highland and Minerals Company is considering the purchase of two gold mines. Only one investment will be made. The Australian gold mine will cost $1,648,000 and will produce $325,000 per year in years 5 through 15 and $523,000 per year in years 16 through 25. The U.S. gold mine will cost $2,047,000 and will produce $253,000 per year for the next 25 years. The cost of capital is 11 percent. Use Appendix D for an approximate answer but calculate your final answers using the formula and financial calculator methods. (Note: In looking up present value factors for this problem, you need to work with the concept of a deferred annuity for the Australian mine. The returns in years 5 through 15 actually represent 11 years; the returns in years 16 through 25 represent 10 years.) a-1. Calculate the net present value for each project. a-2. Which investment should be made? Australian mine U.S. mine b-1. Assume the Australian mine justifies an extra 2 percent premium over the normal cost of…
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A factory manager is considering the purchase of one of the following two production equipment. Cash flow estimates for equipment A are in year-zoro dollars while those of equipment B are in actual dollars Equipment A (year-zero S) Equipment B (actual $) $1,200 Initial investment $9,500 Net annual revenue $3.000 $4,000 $0 Market value at end of useful life Useful ife, years 11 11 The manager uses a market interest rate of 12% per year. If inflation rate is expected to average 5.66% per year over the next several years, determine the PW of each equipment. 1. The PW of Equipment A is OA. S14,161 OB. $14,578 OC. $12,500 OD. $0,313 2. The PW of Equipment B is O A. $20,347 OB. S15,200 OC. $20,903 OD. $12,651

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