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. The company estimated the following cash flows related to opening and operating a mine in the area: Cost of new equipment and timbers Working capital required Annual net cash receipts Cost to construct new roads in three years Salvage value of equipment in four years $ 420,000 $ 230,000 $ 165,000* $ 66,000 $ 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%. Click here to view Exhibit 14B-1 and Exhibit 14B-2; to determine the appropriate discount factor(s) using tables. .…………….……………………... Required: a. What is the net present value of the proposed mining project? b. Should the project be accepted?
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. The company estimated the following cash flows related to opening and operating a mine in the area: Cost of new equipment and timbers Working capital required Annual net cash receipts Cost to construct new roads in three years Salvage value of equipment in four years $ 420,000 $ 230,000 $ 165,000* $ 66,000 $ 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%. Click here to view Exhibit 14B-1 and Exhibit 14B-2; to determine the appropriate discount factor(s) using tables. .…………….……………………... Required: a. What is the net present value of the proposed mining project? b. Should the project be accepted?
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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![Problem 14-16 (Algo) Net Present Value Analysis [LO14-2]
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. The company estimated the following cash flows related to opening and operating a mine in the area:
Cost of new equipment and timbers
Working capital required
Annual net cash receipts
Cost to construct new roads in three years
Salvage value of equipment in four years
$ 420,000
$ 230,000
$ 165,000*
$ 66,000
$ 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%.
Click here to view Exhibit 14B-1 and Exhibit 14B-2; to determine the appropriate discount factor(s) using tables.
Required:
a. What is the net present value of the proposed mining project?
b. Should the project be accepted?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1e0b31ef-fb5f-464e-bdbe-5eaf2026fee8%2F4abaf28f-6aa7-4eff-a78d-a1a64cf34530%2F4fcy7e_processed.png&w=3840&q=75)
Transcribed Image Text:Problem 14-16 (Algo) Net Present Value Analysis [LO14-2]
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. The company estimated the following cash flows related to opening and operating a mine in the area:
Cost of new equipment and timbers
Working capital required
Annual net cash receipts
Cost to construct new roads in three years
Salvage value of equipment in four years
$ 420,000
$ 230,000
$ 165,000*
$ 66,000
$ 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%.
Click here to view Exhibit 14B-1 and Exhibit 14B-2; to determine the appropriate discount factor(s) using tables.
Required:
a. What is the net present value of the proposed mining project?
b. Should the project be accepted?
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