SECTION A: COMPULSORY QUESTION ONE next 10 years. A K50,000 at the en Seth Wandi, the owner of Wandi Gold Mining, is evaluating a new gold mine in Namibia 10 percent Kasuba Zulu, the company's geologist, has just finished his analysis of the mine site. He ver) has estimated that the mine would be productive for eight years, after which the gold would be completely mined. Kasuba has taken an estimate of the gold deposits to Samantha Mwamba, the company's financial officer. Samantha has been asked by Seth to perform an analysis of the new mine and present her recommendation on whether the company should open the new mine. Samantha has used the estimates provided by Kasuba to determine the revenues that could be expected from the mine. She has also projected the expense of opening the mine and the annual operating expenses. If the company opens the mine, it will cost K400 million today, and in the eighth year it will have a K35 million in costs associated with closing the mine and reclaiming the area surrounding it. The expected cash flows each year from the mine are shown in the following table. Wandi Gold Mining has a 12 percent required return on all of its gold mines. The company expects the following cash inflows. APE Year 1 2 3 4 5 6 7 8 Cash Inflow 85 90 140 180 195 130 95 60 (K'm) a) Calculate the payback period of the proposed mine b) Calculate the internal rate of return of the proposed mine c) Calculate the net present value of the proposed mine d) Based on your analysis, should the company open the mine? (3 Marks) (10 Marks) (8 Marks) (4 Marks) [TOTAL: 25 MARKS] 85 Page 2 of 15 200 515 85 85 780
SECTION A: COMPULSORY QUESTION ONE next 10 years. A K50,000 at the en Seth Wandi, the owner of Wandi Gold Mining, is evaluating a new gold mine in Namibia 10 percent Kasuba Zulu, the company's geologist, has just finished his analysis of the mine site. He ver) has estimated that the mine would be productive for eight years, after which the gold would be completely mined. Kasuba has taken an estimate of the gold deposits to Samantha Mwamba, the company's financial officer. Samantha has been asked by Seth to perform an analysis of the new mine and present her recommendation on whether the company should open the new mine. Samantha has used the estimates provided by Kasuba to determine the revenues that could be expected from the mine. She has also projected the expense of opening the mine and the annual operating expenses. If the company opens the mine, it will cost K400 million today, and in the eighth year it will have a K35 million in costs associated with closing the mine and reclaiming the area surrounding it. The expected cash flows each year from the mine are shown in the following table. Wandi Gold Mining has a 12 percent required return on all of its gold mines. The company expects the following cash inflows. APE Year 1 2 3 4 5 6 7 8 Cash Inflow 85 90 140 180 195 130 95 60 (K'm) a) Calculate the payback period of the proposed mine b) Calculate the internal rate of return of the proposed mine c) Calculate the net present value of the proposed mine d) Based on your analysis, should the company open the mine? (3 Marks) (10 Marks) (8 Marks) (4 Marks) [TOTAL: 25 MARKS] 85 Page 2 of 15 200 515 85 85 780
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
Related questions
Question
![SECTION A: COMPULSORY
QUESTION ONE
next 10 years. A
K50,000 at the en
Seth Wandi, the owner of Wandi Gold Mining, is evaluating a new gold mine in Namibia 10 percent
Kasuba Zulu, the company's geologist, has just finished his analysis of the mine site. He ver)
has estimated that the mine would be productive for eight years, after which the gold
would be completely mined. Kasuba has taken an estimate of the gold deposits to
Samantha Mwamba, the company's financial officer. Samantha has been asked by Seth
to perform an analysis of the new mine and present her recommendation on whether the
company should open the new mine. Samantha has used the estimates provided by
Kasuba to determine the revenues that could be expected from the mine. She has also
projected the expense of opening the mine and the annual operating expenses. If the
company opens the mine, it will cost K400 million today, and in the eighth year it will have
a K35 million in costs associated with closing the mine and reclaiming the area
surrounding it. The expected cash flows each year from the mine are shown in the
following table. Wandi Gold Mining has a 12 percent required return on all of its gold
mines. The company expects the following cash inflows.
APE
Year
1
2
3
4
5
6
7
8
Cash
Inflow 85
90
140
180
195
130
95
60
(K'm)
a) Calculate the payback period of the proposed mine
b) Calculate the internal rate of return of the proposed mine
c) Calculate the net present value of the proposed mine
d) Based on your analysis, should the company open the mine?
(3 Marks)
(10 Marks)
(8 Marks)
(4 Marks)
[TOTAL: 25 MARKS]
85
Page 2 of 15
200
515
85
85
780](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd221770e-bf15-4028-bd6b-18893797f624%2Fc5eab828-3393-47a7-baf9-b9b5d51047e2%2Fninhlxt_processed.jpeg&w=3840&q=75)
Transcribed Image Text:SECTION A: COMPULSORY
QUESTION ONE
next 10 years. A
K50,000 at the en
Seth Wandi, the owner of Wandi Gold Mining, is evaluating a new gold mine in Namibia 10 percent
Kasuba Zulu, the company's geologist, has just finished his analysis of the mine site. He ver)
has estimated that the mine would be productive for eight years, after which the gold
would be completely mined. Kasuba has taken an estimate of the gold deposits to
Samantha Mwamba, the company's financial officer. Samantha has been asked by Seth
to perform an analysis of the new mine and present her recommendation on whether the
company should open the new mine. Samantha has used the estimates provided by
Kasuba to determine the revenues that could be expected from the mine. She has also
projected the expense of opening the mine and the annual operating expenses. If the
company opens the mine, it will cost K400 million today, and in the eighth year it will have
a K35 million in costs associated with closing the mine and reclaiming the area
surrounding it. The expected cash flows each year from the mine are shown in the
following table. Wandi Gold Mining has a 12 percent required return on all of its gold
mines. The company expects the following cash inflows.
APE
Year
1
2
3
4
5
6
7
8
Cash
Inflow 85
90
140
180
195
130
95
60
(K'm)
a) Calculate the payback period of the proposed mine
b) Calculate the internal rate of return of the proposed mine
c) Calculate the net present value of the proposed mine
d) Based on your analysis, should the company open the mine?
(3 Marks)
(10 Marks)
(8 Marks)
(4 Marks)
[TOTAL: 25 MARKS]
85
Page 2 of 15
200
515
85
85
780
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