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$ 420,000Working capital required$ 230,000Annual net cash receipts$ 165,000*Cost to construct new roads in three years$ 66,000Salvage value of equipment in four years$ 91,000*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%. Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables.EXHIBIT 14B-2Present Value of an Annuity of $1 in Arrears; 1 r [ 1 - 1 ( 1 + r ) n ]Periods4%5%6%7%8%9%10%11%12%13%14%15%16%17%18%19%20%21%22%23%24%25%10.9620.9520.9430.9350.9260.9170.9090.9010.8930.8850.8770.8700.8620.8550.8470.8400.8330.8260.8200.8130.8060.80021.8861.8591.8331.8081.7831.7591.7361.7131.6901.6681.6471.6261.6051.5851.5661.5471.5281.5091.4921.4741.4571.44032.7752.7232.6732.6242.5772.5312.4872.4442.4022.3612.3222.2832.2462.2102.1742.1402.1062.0742.0422.0111.9811.95243.6303.5463.4653.3873.3123.2403.1703.1023.0372.9742.9142.8552.7982.7432.6902.6392.5892.5402.4942.4482.4042.36254.4524.3294.2124.1003.9933.8903.7913.6963.6053.5173.4333.3523.2743.1993.1273.0582.9912.9262.8642.8032.7452.68965.2425.0764.9174.7674.6234.4864.3554.2314.1113.9983.8893.7843.6853.5893.4983.4103.3263.2453.1673.0923.0202.95176.0025.7865.5825.3895.2065.0334.8684.7124.5644.4234.2884.1604.0393.9223.8123.7063.6053.5083.4163.3273.2423.16186.7336.4636.2105.9715.7475.5355.3355.1464.9684.7994.6394.4874.3444.2074.0783.9543.8373.7263.6193.5183.4213.32997.4357.1086.8026.5156.2475.9955.7595.5375.3285.1324.9464.7724.6074.4514.3034.1634.0313.9053.7863.6733.5663.463108.1117.7227.3607.0246.7106.4186.1455.8895.6505.4265.2165.0194.8334.6594.4944.3394.1924.0543.9233.7993.6823.571118.7608.3067.8877.4997.1396.8056.4956.2075.9385.6875.4535.2345.0294.8364.6564.4864.3274.1774.0353.9023.7763.656129.3858.8638.3847.9437.5367.1616.8146.4926.1945.9185.6605.4215.1974.9884.7934.6114.4394.2784.1273.9853.8513.725139.9869.3948.8538.3587.9047.4877.1036.7506.4246.1225.8425.5835.3425.1184.9104.7154.5334.3624.2034.0533.9123.7801410.5639.8999.2958.7458.2447.7867.3676.9826.6286.3026.0025.7245.4685.2295.0084.8024.6114.4324.2654.1083.9623.8241511.11810.3809.7129.1088.5598.0617.6067.1916.8116.4626.1425.8475.5755.3245.0924.8764.6754.4894.3154.1534.0013.8591611.65210.83810.1069.4478.8518.3137.8247.3796.9746.6046.2655.9545.6685.4055.1624.9384.7304.5364.3574.1894.0333.8871712.16611.27410.4779.7639.1228.5448.0227.5497.1206.7296.3736.0475.7495.4755.2224.9904.7754.5764.3914.2194.0593.9101812.65911.69010.82810.0599.3728.7568.2017.7027.2506.8406.4676.1285.8185.5345.2735.0334.8124.6084.4194.2434.0803.9281913.13412.08511.15810.3369.6048.9508.3657.8397.3666.9386.5506.1985.8775.5845.3165.0704.8434.6354.4424.2634.0973.9422013.59012.46211.47010.5949.8189.1298.5147.9637.4697.0256.6236.2595.9295.6285.3535.1014.8704.6574.4604.2794.1103.9542114.02912.82111.76410.83610.0179.2928.6498.0757.5627.1026.6876.3125.9735.6655.3845.1274.8914.6754.4764.2924.1213.9632214.45113.16312.04211.06110.2019.4428.7728.1767.6457.1706.7436.3596.0115.6965.4105.1494.9094.6904.4884.3024.1303.9702314.85713.48912.30311.27210.3719.5808.8838.2667.7187.2306.7926.3996.0445.7235.4325.1674.9254.7034.4994.3114.1373.9762415.24713.79912.55011.46910.5299.7078.9858.3487.7847.2836.8356.4346.0735.7465.4515.1824.9374.7134.5074.3184.1433.9812515.62214.09412.78311.65410.6759.8239.0778.4227.8437.3306.8736.4646.0975.7665.4675.1954.9484.7214.5144.3234.1473.9852615.98314.37513.00311.82610.8109.9299.1618.4887.8967.3726.9066.4916.1185.7835.4805.2064.9564.7284.5204.3284.1513.9882716.33014.64313.21111.98710.93510.0279.2378.5487.9437.4096.9356.5146.1365.7985.4925.2154.9644.7344.5244.3324.1543.9902816.66314.89813.40612.13711.05110.1169.3078.6027.9847.4416.9616.5346.1525.8105.5025.2234.9704.7394.5284.3354.1573.9922916.98415.14113.59112.27811.15810.1989.3708.6508.0227.4706.9836.5516.1665.8205.5105.2294.9754.7434.5314.3374.1593.9943017.29215.37213.76512.40911.25810.2749.4278.6948.0557.4967.0036.5666.1775.8295.5175.2354.9794.7464.5344.3394.1603.9954019.79317.15915.04613.33211.92510.7579.7798.9518.2447.6347.1056.6426.2335.8715.5485.2584.9974.7604.5444.3474.1663.999 Required:a. What is the net present value of the proposed mining project?

NPV(Net present Value) is the technique which has been used to evaluate a business project, in…

Answered: ndhoek Mines, Limited, of Namibia, is…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

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	$ 420,000
Working capital required	$ 230,000
Annual net cash receipts	$ 165,000*
Cost to construct new roads in three years	$ 66,000
Salvage value of equipment in four years	$ 91,000

*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%.

Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables.

EXHIBIT 14B-2
Present Value of an Annuity of $1 in Arrears; 1 r [ 1 - 1 ( 1 + r ) n ]

Periods	4%	5%	6%	7%	8%	9%	10%	11%	12%	13%	14%	15%	16%	17%	18%	19%	20%	21%	22%	23%	24%	25%
1	0.962	0.952	0.943	0.935	0.926	0.917	0.909	0.901	0.893	0.885	0.877	0.870	0.862	0.855	0.847	0.840	0.833	0.826	0.820	0.813	0.806	0.800
2	1.886	1.859	1.833	1.808	1.783	1.759	1.736	1.713	1.690	1.668	1.647	1.626	1.605	1.585	1.566	1.547	1.528	1.509	1.492	1.474	1.457	1.440
3	2.775	2.723	2.673	2.624	2.577	2.531	2.487	2.444	2.402	2.361	2.322	2.283	2.246	2.210	2.174	2.140	2.106	2.074	2.042	2.011	1.981	1.952
4	3.630	3.546	3.465	3.387	3.312	3.240	3.170	3.102	3.037	2.974	2.914	2.855	2.798	2.743	2.690	2.639	2.589	2.540	2.494	2.448	2.404	2.362
5	4.452	4.329	4.212	4.100	3.993	3.890	3.791	3.696	3.605	3.517	3.433	3.352	3.274	3.199	3.127	3.058	2.991	2.926	2.864	2.803	2.745	2.689
6	5.242	5.076	4.917	4.767	4.623	4.486	4.355	4.231	4.111	3.998	3.889	3.784	3.685	3.589	3.498	3.410	3.326	3.245	3.167	3.092	3.020	2.951
7	6.002	5.786	5.582	5.389	5.206	5.033	4.868	4.712	4.564	4.423	4.288	4.160	4.039	3.922	3.812	3.706	3.605	3.508	3.416	3.327	3.242	3.161
8	6.733	6.463	6.210	5.971	5.747	5.535	5.335	5.146	4.968	4.799	4.639	4.487	4.344	4.207	4.078	3.954	3.837	3.726	3.619	3.518	3.421	3.329
9	7.435	7.108	6.802	6.515	6.247	5.995	5.759	5.537	5.328	5.132	4.946	4.772	4.607	4.451	4.303	4.163	4.031	3.905	3.786	3.673	3.566	3.463
10	8.111	7.722	7.360	7.024	6.710	6.418	6.145	5.889	5.650	5.426	5.216	5.019	4.833	4.659	4.494	4.339	4.192	4.054	3.923	3.799	3.682	3.571
11	8.760	8.306	7.887	7.499	7.139	6.805	6.495	6.207	5.938	5.687	5.453	5.234	5.029	4.836	4.656	4.486	4.327	4.177	4.035	3.902	3.776	3.656
12	9.385	8.863	8.384	7.943	7.536	7.161	6.814	6.492	6.194	5.918	5.660	5.421	5.197	4.988	4.793	4.611	4.439	4.278	4.127	3.985	3.851	3.725
13	9.986	9.394	8.853	8.358	7.904	7.487	7.103	6.750	6.424	6.122	5.842	5.583	5.342	5.118	4.910	4.715	4.533	4.362	4.203	4.053	3.912	3.780
14	10.563	9.899	9.295	8.745	8.244	7.786	7.367	6.982	6.628	6.302	6.002	5.724	5.468	5.229	5.008	4.802	4.611	4.432	4.265	4.108	3.962	3.824
15	11.118	10.380	9.712	9.108	8.559	8.061	7.606	7.191	6.811	6.462	6.142	5.847	5.575	5.324	5.092	4.876	4.675	4.489	4.315	4.153	4.001	3.859
16	11.652	10.838	10.106	9.447	8.851	8.313	7.824	7.379	6.974	6.604	6.265	5.954	5.668	5.405	5.162	4.938	4.730	4.536	4.357	4.189	4.033	3.887
17	12.166	11.274	10.477	9.763	9.122	8.544	8.022	7.549	7.120	6.729	6.373	6.047	5.749	5.475	5.222	4.990	4.775	4.576	4.391	4.219	4.059	3.910
18	12.659	11.690	10.828	10.059	9.372	8.756	8.201	7.702	7.250	6.840	6.467	6.128	5.818	5.534	5.273	5.033	4.812	4.608	4.419	4.243	4.080	3.928
19	13.134	12.085	11.158	10.336	9.604	8.950	8.365	7.839	7.366	6.938	6.550	6.198	5.877	5.584	5.316	5.070	4.843	4.635	4.442	4.263	4.097	3.942
20	13.590	12.462	11.470	10.594	9.818	9.129	8.514	7.963	7.469	7.025	6.623	6.259	5.929	5.628	5.353	5.101	4.870	4.657	4.460	4.279	4.110	3.954
21	14.029	12.821	11.764	10.836	10.017	9.292	8.649	8.075	7.562	7.102	6.687	6.312	5.973	5.665	5.384	5.127	4.891	4.675	4.476	4.292	4.121	3.963
22	14.451	13.163	12.042	11.061	10.201	9.442	8.772	8.176	7.645	7.170	6.743	6.359	6.011	5.696	5.410	5.149	4.909	4.690	4.488	4.302	4.130	3.970
23	14.857	13.489	12.303	11.272	10.371	9.580	8.883	8.266	7.718	7.230	6.792	6.399	6.044	5.723	5.432	5.167	4.925	4.703	4.499	4.311	4.137	3.976
24	15.247	13.799	12.550	11.469	10.529	9.707	8.985	8.348	7.784	7.283	6.835	6.434	6.073	5.746	5.451	5.182	4.937	4.713	4.507	4.318	4.143	3.981
25	15.622	14.094	12.783	11.654	10.675	9.823	9.077	8.422	7.843	7.330	6.873	6.464	6.097	5.766	5.467	5.195	4.948	4.721	4.514	4.323	4.147	3.985
26	15.983	14.375	13.003	11.826	10.810	9.929	9.161	8.488	7.896	7.372	6.906	6.491	6.118	5.783	5.480	5.206	4.956	4.728	4.520	4.328	4.151	3.988
27	16.330	14.643	13.211	11.987	10.935	10.027	9.237	8.548	7.943	7.409	6.935	6.514	6.136	5.798	5.492	5.215	4.964	4.734	4.524	4.332	4.154	3.990
28	16.663	14.898	13.406	12.137	11.051	10.116	9.307	8.602	7.984	7.441	6.961	6.534	6.152	5.810	5.502	5.223	4.970	4.739	4.528	4.335	4.157	3.992
29	16.984	15.141	13.591	12.278	11.158	10.198	9.370	8.650	8.022	7.470	6.983	6.551	6.166	5.820	5.510	5.229	4.975	4.743	4.531	4.337	4.159	3.994
30	17.292	15.372	13.765	12.409	11.258	10.274	9.427	8.694	8.055	7.496	7.003	6.566	6.177	5.829	5.517	5.235	4.979	4.746	4.534	4.339	4.160	3.995
40	19.793	17.159	15.046	13.332	11.925	10.757	9.779	8.951	8.244	7.634	7.105	6.642	6.233	5.871	5.548	5.258	4.997	4.760	4.544	4.347	4.166	3.999

Required:

a. What is the net present value of the proposed mining project?

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.