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 $ 500,000 Working capital required $ 180,000 Annual net cash receipts $ 195,000* Footnote asterisk Cost to construct new roads in three years $ 56,000 Salvage value of equipment in four years $ 81,000 *Footnote asteriskReceipts 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 22%. Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using tables. Required: What is the net present value of the proposed mining project?
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 $ 500,000 Working capital required $ 180,000 Annual net cash receipts $ 195,000* Footnote asterisk Cost to construct new roads in three years $ 56,000 Salvage value of equipment in four years $ 81,000 *Footnote asteriskReceipts 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 22%. Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using tables. Required: What is the net present value of the proposed mining project?
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
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Transcribed Image Text: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 $ 500,000 Working capital required $ 180,000 Annual net cash receipts $ 195,000* Footnote asterisk Cost to
construct new roads in three years $ 56,000 Salvage value of equipment in four years $ 81,000 *Footnote
asteriskReceipts 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 22%. Click here to view Exhibit 7B-1 and Exhibit 7B-2,
to determine the appropriate discount factor(s) using tables. Required: What is the net present value of the proposed
mining project?
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